The Canadian cannabis sector continues to see sales expand while the related stocks haven’t generally rallied. Aphria (APHA) is a prime example of a sector stock unable to generate any momentum due to a reset of expectations to more reasonable levels. My investment thesis remains bullish on the stock here around $6 after urging investors to buy below $4 during the COVID-19 crisis.

APHA Aphria Inc. daily Stock Chart

Breakout EBITDA

The main Canadian LPs have suffered from an inability to reach positive EBITDA due to over production and expense structures built for global companies multiple the size of current business. Aphria is one of the only companies to already generate EBITDA profits and the soon-to-be released quarter is the potential breakout quarter for the stock and the sector.

Aphria had previously promoted some very aggressive EBITDA numbers while the other large Canadian cannabis LPs like Aurora Cannabis (OTC:ACB) and Canopy Growth (OTC:CGC) can’t even figure out how to eliminate large losses. A year ago when reporting the FQ1 results, Aphria outlined a path to adjusted EBITDA between C$88 million and C$95 million for FY20:

Source: Aphria FQ1’20 earnings release

The company had only reported a quarter where adjusted EBITDA was just C$1 million. Aphria spinning this level of EBITDA into another C$90 million over the next 3 quarters appeared highly unlikely. The update even came halfway into FQ2’20 leaving only 7.5 months left in FY20. Unsurprisingly, Aphria came nowhere close to reaching those targets in part due to COVID-19.

For this reason, the upcoming FQ1’21 earnings on October 15 are so crucial. Aphria actually hit FQ4’20 adjusted EBITDA of C$8.6 million and the current estimates are for numbers to nearly double in the last quarter.

Industry data have shown Aphria taking market share in a growing market. Canadian cannabis sales grew substantially in July with