Why Is Aphria’s EU GMP Certification a Big Deal?

Yesterday, Aphria (NYSE:APHA) announced that it received GMP (Good Manufacturing Practices) certification from the EU for its subsidiary Avanti Rx Analytics. With this certification, the company will be able to export bulk and finished dried flower and cannabis oil for medical usage across the EU where it’s legal.

Notably, Germany is one of the important international markets for Aphria. The GMP certification would allow the company to fully utilize CC Pharma’s distribution network to drive its sales in the country. The company expects to deliver the first batch of medical products in the fourth quarter of fiscal 2020.

In the press release, Aphria’s CEO, Irwin D. Simon, called the EU GMP certification a “game-changer.” He also said, “With 2.4 million square feet of licensed production capacity of up to 255,000 kilograms, state-of-the-art greenhouses and labs, and our global infrastructure, we believe Aphria is well positioned to lead in the Canadian and international markets.”

Analysts’ opinion on Aphria’s GMP certification

As reported by MarketWatch on Tuesday, Aaron Grey of Alliance Global Partners initiated the coverage on Aphria. He gave a “buy” rating and a target price of 11 Canadian dollars. With Aphria winning five of 13 cultivation licenses and its subsidiary CC Pharma providing access to 13,000 dispensaries, Grey thinks that Germany is a significant opportunity for Aphria.

As reported by MarketWatch, in his research note, Grey said, “We look for fundamentals to improve from continued success in the Canadian market and beginning of sales in Germany – and see potential partnerships within the US and other markets as a potential catalyst for the stock.”

Owen Bennett of Jefferies considers Aphria to be his top pick in the cannabis space. He stated that the new development drives his bullish estimates for Aphria, as reported by MarketWatch.

Stock performance

Following Aphria’s announcement about receiving EU GMP certification, its stock rose to a high of 7.34 Canadian dollars on Tuesday. However, the stock might have fallen due to weakness in the broader equity market and the cannabis sector. Overall, Aphria closed the day at 6.95 Canadian dollars, which implies a fall of 1% from the previous day’s closing price. Meanwhile, the S&P 500 Index and the ETFMG Alternative Harvest ETF (NYSE:MJ) fell by 0.3% and 2.5%, respectively.

YTD, Aphria has returned 6.8% as of Tuesday, which was lower than its peers. The company’s lower-than-expected second-quarter earnings had a negative impact on its stock price. During the same period, Canopy Growth (TSE:WEED) and Cronos Group (NASDAQ:CRON) have returned 15.8% and 7.3%. However, Aurora Cannabis (NYSE:ACB), which is going through a rough period, has fallen by 6.8% during the same period.

Analysts’ estimates for Aphria

For fiscal 2020, analysts expect Aphria to report revenue of 539.9 million Canadian dollars. Notably, the estimate implies an increase of 127.7% from 237.1 million Canadian dollars in fiscal 2019. For fiscal 2021, analysts expect the company’s revenue to rise by 37% to 739.6 million Canadian dollars.

Moving to profitability, analysts expect Aphria to report an EBITDA of 25.4 million Canadian dollars in fiscal 2020. The EBITDA would be a significant improvement from a negative EBITDA of 27.7 million Canadian dollars in fiscal 2019. Meanwhile, for fiscal 2021, they expect the company’s EBITDA to rise to 107.2 million Canadian dollars.