EXCLUSIVE: Cannabis Producer Aphria CEO Says Canada is not Colorado

With the recent election in Canada that paves the way for the potential legalization of cannabis for adult use, 420 Investor checked in with Vic Neufeld, the CEO of Aphria. Based in Leamington, Ontario and trading on the TSX Venture with the symbol “APH”, the company has made significant progress in 2015. Neufeld believes that the recent change in the government bodes well for a stronger medical marijuana program. Unlike many of his peers, Neufeld expects the path towards legalization for adult use to be a slow one, and he doesn’t envision a Colorado-style model. He discusses his company’s competitive advantages, its likelihood of expanding to other countries and how he sees the industry evolving.

Key points

  • Neufeld was CEO of Jamieson Pharmaceuticals until the company was sold in 2014
  • He joined Aphria as CEO in May 2014 and took it public in December 2014
  • Year-end patient goal of 2500 was exceeded in October, with 3100 patients
  • Company has both retail and wholesale distribution (about 20-25%)
  • Margins are 70% retail and 40-43% wholesale
  • The company is seeing additional interest from other potential wholesale clients
  • Just completed expansion, adding 20K of greenhouse and 10K of infrastructure to prior 22k of greenhouse and 8K of infrastructure, part of which was to accommodate extracts (which are about four months away)
  • Expecting Health Canada visit by end of November but might not be finalized until year-end
  • “Trudeaumania” has influenced retail and institutional investors
  • Neufeld expects initial focus by new PM to be improving MMPR, including better access and the inclusion of pharmacists in distribution
  • Legalization into other retail channels is three to five years out – “more like Arizona than Colorado”
  • Aphria doesn’t want to operate retail storefronts
  • Aphria likes its greenhouse strategy and has no interest in growing indoors
  • Consolidation will continue due to lack of profitability
  • $2.20 GAAP cost of production per gram, with additional $0.20 for packaging and shipping
  • Company is in discussions with potential operations in other countries, as the Canadian regulatory model will be adopted elsewhere.  Other companies want to capitalize on the growing pains endured by Aphria and to leverage its intellectual property
  • Company expects to keep all Canadian production in Leamington
  • Next expansion is 5-6 acre buildout on existing property, should drop production cost to $1.80
  • Aphria is likely to raise capital to fund next expansion and international opportunities, with $10mm needed for each.
  • 5 “wannabee” LPs have reached out to Aphria for assistance, but no interest yet due to very high cost structures
  • Aphria could be one of the first LPs to break even with respect to cash flow
  • Company is interested in partnering with other companies with extraction expertise
Article written by Alan Brochstein, CFA on behalf of New Cannabis Ventures
Published by NCV Newswire
NCV Newswire
The NCV Newswire by New Cannabis Ventures aims to curate high quality content and information about leading cannabis companies to help our readers filter out the noise and to stay on top of the most important cannabis business news. The NCV Newswire is hand-curated by an editor and not automated in anyway. Have a confidential news tip? Get in touch.

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