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Why Did Aphria Stock Fall 7% on May 8?


May. 11 2020, Published 7:22 a.m. ET

On May 8, Aphria’s (NYSE:APHA) management announced that it agreed to repurchase its convertible senior notes from some holders outside of Canada. The company would repurchase 127.5 million Canadian dollars of convertible notes for approximately 18.7 million shares and 2.9 million Canadian dollars in cash, which accounts for accrued and unpaid interest. The company said that it would repurchase notes at a 25% discount to their face value by offering shares at a 31% premium to its closing price on May 7. 

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Aphria said that the transaction would strengthen its balance sheet by increasing its net cash position. At the end of the last quarter, the company had net cash of 36.3 million Canadian dollars. Meanwhile, the transaction would increase its net cash position to 163.8 million Canadian dollars. Also, the company would save 6.7 million Canadian dollars on interest every year. 

Aphria reduced its staff

On May 8, Bloomberg reported that Aphria laid off a few employees including its chief marketing officer. Irwin Simon, Aphria’s CEO, told Bloomberg that the company had to let go less than one percent of its employees after it combined some of its marketing and sales teams. Simon said that he’s restructuring the company to market its products through digital media, which includes social media.

When Simon was asked about the company’s decision to repurchase its notes, he said, “It’s accretive to earnings and ultimately we chose to use our equity to reduce our net debt and set the company up better from a financial standpoint. It’s not going to be one of the easiest years out there, so you better make sure that your business is tight and positioned right going into 2021.”

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Aphria stock fell

The announcement about repurchasing convertible senior notes and laying off employees didn’t sit well with investors. On May 8, Aphria stock fell to a low of 4.75 Canadian dollars before closing at 4.78 Canadian dollars. The level represents a fall of 7.0% from the previous day’s closing price. Investors might be concerned about the dilution due to the addition of new shares. YTD, Aphria has lost 29.5% of its stock value. Meanwhile, the company has outperformed the ETFMG Alternative Harvest ETF (NYSE:MJ), which has fallen by 31.0%. During the same period, Cronos Group (NASDAQ:CRON), Canopy Growth (TSE:WEED), and OrganiGram Holdings (NASDAQ:OGI) have also fallen by 24.6%, 21.9%, and 36.4%, respectively.

My take

Despite the fall on May 8, I’m bullish on Aphria. The company’s subsidiary in Malta, ASG Pharma received EU GMP certification last week. Aphria reported a strong third-quarter performance last month. While many of the cannabis companies struggle to become profitable, the company reported positive EBITDA in the past four quarters. So, I think that investors should utilize these dips to accumulate the stock.


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