Medical Marijuana Producer Aphria’s International Expansion Plans To Drive Its Value In The Long Term

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With barely two months left for the much-awaited legalization of recreational marijuana in Canada, all the pot stocks in the country are aggressively preparing for the groundbreaking event and its after effects. However, given the uncertainty around the potential of the recreational marijuana market, these cannabis players are not putting all their eggs in the same basket and are diversifying their operations to stay ahead in the game. Low-cost medical marijuana producer, Aphria, is one such cannabis player that is expanding its international presence to further enhance its value.  In this note, we discuss how Aphria’s strategy to expand internationally will drive its value in the long term.

We currently have a price estimate of CAD 12.60 per share for Aphria using a 2019 P/E multiple of 35x. View our interactive dashboard – Aphria’s International Expansion and modify the key drivers to create scenarios to suit your assumptions.

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Latin America & Caribbean

As more and more companies are legalizing the medical use of marijuana, Aphria has aggressively entered into partnerships and joint ventures to supply its output to these international markets in the last couple of months. Recently, the company acquired industry-leading companies in Colombia, Argentina, Jamaica and a right of first offer and refusal in Brazil through a definitive share purchase agreement with Scythian Biosciences Inc.

The deal is likely to enhance Aphria’s  leadership position in the global cannabis industry, as it will provide the company access to world class assets in the most advanced regulatory jurisdictions across LATAM and Caribbean markets. It will also provide a first mover advantage to the company in Argentina, which will also open avenues for cultivation in the country in the long term. Aphria will also acquire market leadership in Jamaica with the only producing Tier 3 cultivator license in the country, and strategic rights to expand in Brazil.

Aphria expects this deal to be cash flow accretive beginning 2019. We believe that this transaction will be extremely beneficial for Aphria’s growth in the long term, as it provides the company with access to world-class assets in strategic markets as well as the potential to expand its operations further in key Latin America and Caribbean markets.

Australia

The Canadian company completed its first shipment of medical cannabis to its Australia-based partner Althea in late April of this year. The initial shipment, which is the first of the four shipments due in the next 12 months, included a mix of cannabis oil products and dried flower, which will be distributed to pharmacies for eligible medical cannabis patients in Australia.

Last month, Aphria also completed the its largest international shipment of cannabis oil to date to Australian medical life science company, Medlab Clinical Limited (Medlab). The shipment is part of the agreement between the two companies, wherein Aphria will supply high-yield cannabis extracts to Medlab to be used in a human trial to test the management of intractable pain in oncology patients – the first trial of its kind globally. We believe that since Australia is a strategic market for Aphria and its branded cannabis products, its expansion in this market is expected to bolster its sales in the coming months.

Africa

Apart from Australia, Aphria has plans to capture the South African market, since it has a vast potential for growth in the long term. Accordingly, the company has entered into a joint venture with South African company, Verve Group of Companies (VGC), to form a new entity known as CannInvest Africa Ltd.  The newly formed entity will acquire an interest in Verve Dynamics (Verve), which is a licensed producer of medical cannabis extracts in Lesotho, for a sum of CAD 4.05 million. With Verve Group’s resources and Aphria’s expertise and low cost of production, Verve will be able to supply high-grade low-cost cannabis isolates throughout the African continent and to markets across the globe using Aphria’s international distribution network. Wider reach in newer markets will boost Verve’s revenue and, in turn, complement Aphria’s valuation.

 

Do not agree with our forecast? Create your own price forecast for Aphria by changing the base inputs (blue dots) on our interactive platform.

 

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