Is Aphria the Top Canadian Cannabis Stock?

Cannabis stocks have had their fair share of ups and downs over the past few years. Many promising cannabis companies made high-priced acquisitions which came back to haunt them, while others were faced with management issues and short-seller attacks, which caused their stocks to dramatically sell-off.

However, we’re now seeing which cannabis companies are going to be the long-term winners in the industry. One such company is Aphria (APHA). APHA remains the only consistently profitable large-cap Canadian producer.

APHA is not only dominating the Canadian recreational and medical cannabis markets, but is also generating strong sales from overseas. Through its acquisition of CC Pharma, the company has been able to tap into the German cannabis market and should see further growth potential in Europe.

Now APHA has found its entrance into the U.S. market. The company recently announced a $300 million acquisition of Atlanta-based SweetWater Brewing Company. This acquisition should allow them to enter the United States cannabis market and build brand awareness without jeopardizing its listing. 

The United States cannabis market is the largest cannabis market in the world, and a key market for the company. The U.S. market is ten times larger than the legal Canadian market, so many producers in Canada have been trying to enter the market.

The main problem is that many of these companies trade on major U.S. exchanges and cannabis remains federally illegal in the United States. This prevents companies listed on major exchanges from entering the U.S. market directly, as it would jeopardize their listing. The solution is to make an acquisition that will allow them to enter the market, which its recent acquisition of SweetWater Brewing does.

APHA’s CEO Irwin D Simon provided the following comment regarding the acquisition, "Our strong balance sheet and access to capital have enabled us to enter the U.S. through this strategic and accretive acquisition. We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing, and distribution expertise.”

He also stated, “At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff, and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization. We look forward to building upon the strengths of each of our respective and complementary brands, diversifying our product offering, broadening our consumer reach, and enhancing loyalty with consumers."

APHA has so far maintained a rock-solid balance sheet, but it needs to expand to continue growing. If APHA can grow revenues and establish brand recognition in the United States market, I believe this will benefit the company for years to come. Overall, I remain bullish on APHA and look forward to watching the company continue to deliver results for the quarters to come. 

Disclosure: The author is long APHA

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APHA shares were trading at $6.31 per share on Thursday morning, down $0.04 (-0.63%). Year-to-date, APHA has gained 20.88%, versus a 12.24% rise in the benchmark S&P 500 index during the same period.

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles.

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