Aphria Inc.  (TSX: APHA and NYSE: APHA) reported its results in Canadian dollars for the second quarter ending November 30, 2019, with revenue for adult-use cannabis increasing 46% sequentially to $29 million. Total net revenue decreased sequentially by 4% to $120.6 million but jumped 457% over last year’s second quarter.

The drop from the first quarter for Aphria was attributed to a decrease in distribution revenue from $95.3 million to $86.4 million associated with the change in the German government’s medical reimbursement model and seasonality in CC Pharma. However, the company said that this was partially offset by an increase in net cannabis revenue of $33.7 million from $30.8 million.

Aphria delivered a net loss of $7.9 million, but a positive EBITDA of $1.9 million in the quarter. Last year the company reported a net income of $54 million for the same time period. The company blamed the decrease in net income on provisions associated with its Tier 3 passive investment portfolio.

“We are very pleased with our strong growth and execution in Canada demonstrated by our increase in adult-use cannabis revenue and positive adjusted EBITDA as a result of our compelling brands and market positioning,” stated Irwin D. Simon, Chairman, and Chief Executive Officer. “We are continuing to expand our capabilities internationally with solid progress during the quarter in Germany and South America and look to monetize non-core assets. We are confident in our market position and our ability to generate sustainable profit growth. I am honoured to continue to work closely with our tremendous team around the world to fuel growth and value for all of our stakeholders.”

The company also announced that Simon will officially remove “interim” from his title and become the official CEO. He has been serving as the interim CEO since February. He is also Chairman of the Board.

Cannabis Retail Prices Rise

Aphria reported that the average retail selling price of medical cannabis (exclusive of wholesale), before excise tax, increased to $8.16 per gram in the quarter, compared to $7.56 in the prior quarter, primarily related to a higher percentage of total medical sales coming from Broken Coast in the prior quarter. The average selling price of adult-use cannabis, before excise tax, decreased to $5.22 per gram in the quarter, compared to $6.02 per gram in the prior quarter, primarily as a result of a change in sales mix.

The company noted that customer demand exceeded its supply capabilities in the second quarter as a result of the timing of Aphria Diamond’s license receipt and as a short-term measure the company purchased wholesale products from other Licensed Producers to supplement its near-term supply capabilities. “Wholesale product purchases resulted in a higher cost and less margin opportunity for those sales.”

The net revenue figures included over 5,567 kilogram equivalents sold for the adult-use market and 1,237 kilogram equivalents for medical cannabis sales. The company ended the quarter with a strong balance sheet and liquidity, including $497.7 million of cash and cash equivalents, to fund planned Canadian and International growth.

Looking Ahead

Aphria is forecasting that for fiscal 2020 it expects to deliver net revenue of $575 million to $625 million and EBITDA of roughly $35 million to $42 million. However, it did note that there is a slower than expected rollout in Ontario with more than 40 store openings still pending. Plus, Alberta is still banning vape products and there is a slowing in CC Pharma’s growth arising from recent changes in the German government’s medical reimbursement model.

Carl Merton, Aphria’s Chief Financial Officer said, “We are updating our annual outlook with a little over four months left in our fiscal year to reflect certain market dynamics that have evolved relative to our initial expectations.  We look forward to generating an acceleration in our revenue and profit growth in the second half of the fiscal year and continue to believe the Canadian and international cannabis industry outlook remains robust. Aphria is well-positioned for long-term sustainable growth as we continue to manage the controllable aspects of our business.”