TORONTO – Shares of licensed medical marijuana producer Aphria Inc. surged Monday on better than expected quarterly results and after news of a changing political tone on cannabis south of the border.
Aphria reported a $12.9-million profit in its fiscal third quarter, boosted by the sale of some of its shares in U.S. company Liberty Health Sciences, and reduced production costs per gram of cannabis.
The Leamington, Ont.-based producer’s stock rose as much as 8.95 per cent the Toronto Stock Exchange on Monday, before closing at $12.24, up 7.37 per cent.
Aphria’s chief executive Vic Neufeld said Monday the company is “very excited” about political developments south of the border, where cannabis is an illegal Schedule 1 drug under U.S. federal law, including President Donald Trump’s commitment last week to support congressional efforts to protect states that have legalized cannabis.
Neufeld said Liberty, which has interests in states where pot is legal and in which Aphria has a 28 per cent stake, has been “given a stamp of validation by key political leaders.”
“We are very excited that this has happened,” he told analysts discussing its latest quarterly results. “We were very confident it would…. Liberty was just ahead of the curve.”
Liberty shares slipped by roughly six per cent on Monday, to $0.93 on the Canadian Securities Exchange, after seeing a more than 19 per cent bump on Friday.
Aphria moved to reduce its stake in Liberty earlier this year after Canada’s biggest exchange operator warned in October that U.S. federal law takes precedence over state laws, and cannabis firms with cross-border activities may face delisting. In January, U.S. Attorney General Jeff Sessions rescinded an Obama-era memo that suggested that the federal government would not intervene in states where cannabis is legal, and said he was leaving it to federal prosecutors in those states to decide how aggressively to enforce federal law.
Aphria sold 26.7 million Liberty shares at a price of $1.25 per share, representing all its shares in the company that are not subject to Canadian Securities Exchange escrow requirements and maintained a 28.1 per cent after the transaction.
But on Friday, Colorado Senator Cory Gardner said he received a commitment from Trump that the memo’s recission would not impact Colorado’s legal marijuana industry.
While Neufeld viewed this as positive, he told analysts Monday he did not expect the TMX Group, which operates the Toronto Stock Exchange and the Venture exchange, to change its stance soon.
Aphria does not anticipate “enough advancement” between now and late July, when the licensed producer is due to reduce its stake in Liberty further to 20 per cent, said Neufeld.
“This is just another advancement of eventually getting to the position of where medical cannabis moves to Schedule 2,” he told analysts. “That journey is still a long way off.”
TMX spokesman Shane Quinn said Monday it is “aware that legislation applicable to the marijuana sector continues to evolve.
“While we continue to monitor legal developments affecting this sector, marijuana remains a Schedule 1 drug under the U.S. federal Controlled Substances Act,” he said in an emailed statement. “From our perspective, United States federal law has jurisdiction over state law in this matter.”
Meanwhile, Aphria reported quarterly revenues that more than doubled to $10.3 million, compared with a year ago, and an improvement in its all-in costs of sales of dried cannabis per gram to $1.56, down from $2.13 from the previous quarter. It also reduced its cash costs per gram to $0.96, compared to $1.45 in the second quarter of 2018.
The company said its latest quarterly profit amounted to eight cents per share for the quarter ended Feb. 28 compared with a profit of nearly $5 million or four cents per share a year ago when it had fewer shares outstanding.
Companies in this story: (TSX:APH)
Note to readers: This is a corrected story. A previous version stated that Aphria’s all-in costs of dried cannabis per gram was $2.13 in the third quarter of 2017.