Aphria shares gain after pot grower's CEO steps down

Neufeld is seen at Aphria's greenhouse in Leamington Ont. in 2014. GEOFF ROBINS

The company attributed the increase in profit to gains on its long-term investment portfolio, primarily divestitures of positions in Hiku Brands and Liberty Health Sciences.

The quarter though wasn't without problems.

The Canadian cannabis producer Aphria reported mixed quarterly results Friday morning that were overshadowed by news that its cofounder Cole Cacciavillani and its CEO, Vic Neufeld, would transition out of their executive roles in the coming months.

The shift from medical to recreational demand hurt Aphria's margins a bit, as recreational products cost less; a gram of recreational product had an average selling price of C$6.32 ($4.77), inclusive of excise tax, while a gram for medical use went for C$7.51 ($5.67), on average.

"This is the first quarter to partially include adult-use sales, helping to drive 63% quarter-over-quarter net revenue growth, as did continued strength in sales to the medical-use market", said Chief Executive Officer Vic Neufeld.

Aphria ended the fiscal second quarter with a strong balance sheet and liquidity, including C$152.1 million of cash and C$32.7 million of liquid marketable securities, to fund announced Canadian and worldwide growth and facilities expansion. The "all-in" cost of goods sold also rose from last year's C$1.83 to C$2.60. It said that as a percent of net revenue, SG&A declined to 127% from 181% in the prior quarter, reflecting improved operating leverage on the Company's growing revenue base.

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Aphria has been under attack from short sellers Hindenburg Research and Quintessential Capital Management, who have accused the company of paying inflated prices for assets held by insiders.

"Succession is the plan".

"Now with legalization and globalization, including a huge market opportunity with positive developments in the U.S., Aphria's next generation of leadership may take the reins", Neufeld said in a release.

Neufeld says he and Cacciavillani will begin the transition process immediately, and at the appropriate time, they will both step down from executive positions at Aphria. Aphria expects to produce 255,000 kilograms of pot by the end of 2019, up from 35,000 kilograms now, as new facilities come online. This is later than originally expected due to a backlog at Health Canada, which issues licenses to the industry. Aphria is one of the largest licensed producers in Canada and is on track to be a top supplier in 2019. It also established strategic alliances in the region to expand the company's medical cannabis operations and distribution.

In early December, Aphria shares plummeted after its business was attacked by a short-seller, and a company backed by a billionaire OH family launched a hostile takeover bid in late December, though that effort has a number of red flags.

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