Aphria (APHA.TO)(APHA) shares fell sharply on Monday, after the Canadian cannabis producer reported that COVID-19 lockdowns weighed on sales in its latest quarter. Chief executive officer Irwin Simon says it could take until summer before demand from provincial wholesalers normalizes.
The Leamington, Ont.-based company said that it experienced a “transitory reduction in demand” during the three months ended Feb. 28, due to government restrictions aimed at halting the spread of the deadly virus.
The pandemic has proved challenging for scores of newly-opened brick-and-mortar pot shops. Many have had to quickly roll out click-and-collect and delivery options in order to remain in business through the various lockdowns.
Aphria said the provincial cannabis boards that supply independent stores and sell to the public through government retail arms lowered their inventory levels. The company said provincial government measures resulted in decreased orders and about $5 million product returns.
"The provincial lockdowns were more impactful, particularly in Canada, than we initially expected," Simon told analysts on a post-earnings conference call. "I see us getting back to normal come this summer."
Chief financial officer Karl Merton says lockdown measures in Germany also impacted Aphria's CC Pharma medical distribution business in that country. However, he describes the various lockdowns in the company's core markets as "very short-term headwinds."
Aphria widely missed analyst expectations in its third fiscal quarter, reporting $153.6 million in sales, a decline from $160.5 in the previous three-month period. However, the company maintained its profitability streak, reporting its eighth quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), at $12.7 million.
Analysts polled by Bloomberg called for $163 million in sales, and $14.9 million in adjusted EBITDA.
Aphria recorded a net loss for the third quarter of $361.0 million, or a loss of $1.14 per share, compared to a net loss of $120.6 million, or a loss of $0.42 per share, in the prior quarter.
Net cannabis revenue fell from $67.9 million to $51.7 million in the third quarter, while distribution revenue fell from $91.7 million to $87.1 million. Total kilograms of cannabis sold fell from 26,730 to 18,695, while the all-in cost of goods sold per gram jumped from $1.30 to $1.54.
SweetWater, Aphria’s U.S. booze business, saw sales climb from $0.9 million to $14.8 million in this latest quarter. The pot producer purchased the craft brewery last year for about US$300 million as a vehicle to market its brands in the United States ahead of potential federal cannabis legalization.
Aphria is probably not the only Canadian-licensed producer to see a recent sales hit from COVID-19 measures, according to CIBC analyst John Zamparo.
"We believe the top-line underperformance, which was largely from APHA’s cannabis operations, will likely be seen across the industry in calendar Q1," he wrote in a note to clients on Monday. "Store operating restrictions, inventory reductions in Ontario and Alberta, and a weaker seasonal period to start the year should lead to softer sales across the space."
Simon's tone was optimistic as he reminded analysts that "One day, this pandemic is going to be over."
Aphria shareholders are set to vote on a proposed combination with Canadian rival Tilray (TRLY) on Wednesday. The companies said in December, when the deal was announced, that the combined pot firm will be the “largest global cannabis company” by revenue.
If the deal is successful, the company will operate under the Tilray name, with Simon as leader.
Toronto-listed Aphria shares fell 13.26 per cent to $17.66 as at 11:43 a.m. ET.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.