Canada moving closer to legalizing recreational use of marijuana presents a unique opportunity to buy Aphria Inc (OTCMKTS:APHQF) at a low. The stock has pulled back, in what is seen to be a minor correction, offering one of the best entry points given the potential impact of the legalization drive.
The stock is unlikely to drop any further as momentum and excitement in Canada legalizing recreational marijuana continues to gain momentum. The stock is currently trading at the $9.25 handle, which seems to be a good entry point.
A rally followed by a close above the $10 a share mark, should affirm the emerging uptrend as the stock looks set to make a run for the $13 a share mark, ahead of its 52-week high of $19.87. On the downside, the stock faces immediate support at the $7 a share level, below which it remains susceptible for further declines to the $4 a share mark.
Aphria is a cannabis company that produces, sales and distributes legal marijuana. The company’s products are designed to treat a variety of patient’s illnesses as well as symptoms. It also offers several smoke-free medications for those who are unable to consume other forms of the products.
Aphria is one of Canada’s lowest cost producers of marijuana and produces dry cannabis as well as cannabis oil of varying strength and qualities.
Over the past one year, Aphria has rallied by more than 100%, a trend that looks set to continue after the recent pullback. A string of positive developments in the recent past appears to have strengthened investor’s confidence in the company.
Construction of State of the Art Extraction Center of Excellence
In anticipation of recreational use legalization, Aphria has moved to strengthen its cannabis production capacity. The company’s board of directors has approved a $55 million capital project for the construction of state of the art Extraction Center of Excellence in Leamington On.
Once complete the facility will be used for a wide range of cannabis extractions, including Co2 butane and ethanol. It will also be equipped to produce world-class cannabis concentrates, including fractionated distillates.
Construction of the facility is to begin immediately with completion slated for March 2019. Once complete, Aphria will be in a position to produce 200,000 kgs of cannabis annually.
“The Extraction Centre of Excellence will give Aphria a significant competitive advantage in cannabis concentrates, which are expected to be a significant product category. This is the latest example of our continued leadership in cannabis product innovation,” said Vic Neufeld, CEO of Aphria.
In addition, the board has approved $20 million increase to Aphria Diamond budget. The funds are to be used to improve the unit’s technologies as part of an effort that seeks to improve production capacity by 20,000 kgs annually, bringing its capacity to 140,000 kgs annually.
The board has also approved a $10 million build-out, of a state of the art greenhouses on a portion of a property acquired last year as part of Aphria One. The expansion should lead to an overall yield increase of 10,000 kgs annually.
$225 Million Capital Raise
To support the rapid expansion drive, Aphria has entered into an agreement with Clarus Securities pursuant to which underwriters have agreed to purchase on a bought deal basis 18.9 million common shares of the company. The company is set to raise C$225 million in gross proceeds from the offering.
Aphria has also granted underwriters an overallotment option for the purchase of an additional 2.8 million shares. In the event the option is exercised, the company’s gross proceeds from the offering should spike to C$258.8 million.
Net proceeds from the offering are to be used in part, to finance the development of Extraction Center of Excellence as well as of capacity increase at Aphria Diamond. The company also intends to construct additional cannabis production facilities in both foreign and Canadian jurisdictions.
South Africa Joint Venture
As the company continues to expand its cannabis production capacity, it also remains focused on expanding its footprint in established and regulated markets in Africa. Aphria has since formed a joint venture, CannInvest Africa Ltd with South African Company Verve Group of Companies.
The Joint venture is to acquire an interest in Verve Dynamics Inc. a licensed medical cannabis producer in Lesotho. According to the Chief Executive Officer, the C$4.05 million transaction marks another significant pillar in the company’s strategic international expansion plan that has so far extended to more than 10 countries in five continents.
What Next For Aphria
Aphria has served all the necessary catalysts that underscore its growth prospects as the cannabis market continues to expand. A rapid expansion drive that has bolstered cannabis production capacity should allow the company to benefit great deal on Canada legalizing recreational use of Marijuana.
There is no denying that Aphria is headed in the right direction and it is only a matter of time before it starts climbing high after the recent pullback.
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Disclosure: We have no position in APHQF and have not been compensated for this article.