Pure speculation: Aphria’s US divestiture clouds the cannabis stock market
Aphria Inc. (TSX:APH) (OTC:APHQF) officially left the U.S. cannabis market this week. Despite a banner month on the marijuana stock market that has seen share prices nearly double, the company divested its 100 percent ownership of Liberty Health Sciences Inc. (CSE:LHS) (OTCQX: LHSIF) and passed its 64,118,462 shares to a group of individual buyers on Thursday.
Ever since the TMX Group Inc., the parent company of the TSX threatened to de-list any company that runs afoul of US federal laws —in this case, the federal prohibition on cannabis — Aphria has been in a tenuous position. The company dragged the issue until February, when they finally laid out a plan to divest from the entirety of their US interests, thus remaining in the good grace of the TSX.
“Given the current federal legal framework in the United States, we have made the strategic decision to divest our remaining U.S. holdings at this time in order to permit us to focus on other more immediate capital markets and strategic opportunities in Canada and in other legal markets around the world," Aphria CEO Vic Neufeld clarified in a statement.
Share prices of both companies rose sharply following the announcement. Liberty gained 6.45 percent rise, closing out the day at CAD$0.99, with Aphria beating an early morning dip to end up at CAD$21.35.
Some argue that Aphria’s global reach can now extend freely without worrying about the legal back-and-forth that’s plaguing the United States marijuana industry. And the cannabis giant isn’t leaving the American marijuana market behind just yet. Neufeld stated that Aphria is waiting “until U.S. federal cannabis laws are reformed” before becoming a more significant player south of the border.
In the meantime, Liberty Health Sciences remains a strategic partner. Aphria’s products will still be available through Liberty’s medical marijuana programs, and Aphria even has the opportunity to buy back all or some of their shares should they want to any time over the next five years. It’s a solid strategy, seeing as Liberty Health saw its largest revenue increase in history this quarter.
According to the quarterly reports, Liberty saw a 95 percent increase over the last quarter. Revenue came in at $2.2 million, and Liberty’s patient count jumped from 4600 to over 10,000 in three months time. To meet this demand, Liberty received permission from the Florida Health Department on Tuesday to launch a new online patient portal that will connect patients, doctors, and cannabis retailers with one convenient system.
But a loss is a loss, and the rest is just speculation
Sure, the American cannabis market is touchy at best. The Department of Justice seized illegal cannabis in California while in the same breath lawmakers are rallying behind marijuana legalization for veterans. For a Canadian LP aiming to be a competitor on the global stage, the dramatics of the United States legal system may seem like unnecessary stress.
But recent gains in the cannabis market may have marijuana stock investors playing their hand too soon. While some experts argue that this rally is the real thing, it’s hard not to see echoes of the Bitcoin craze of the past. The current market rally followed Constellation Brands' massive buy-in into Canopy Growth Corporation, which set off a spit-fire of speculation of “who’s next?” Everyone from Diageo to Anheuser-Busch is supposedly looking at the cannabis industry.
It may very well be that this rally is real, but like Bitcoin, before it (and the last marijuana stock rally for that matter) FOMO investors are buying in based on pure speculation. A month ago, and for most of the year, Aphria’s stock wouldn’t move even if Vic Neufeld tweeted a new cat meme. They’ve nothing in the past month but lose assets, and yet the price has doubled?
An eye on the global market
Right now Aphria is busy keeping their sights sets on the global cannabis market. Two days ago, they announced a partnership with Schroll Flowers, a European cannabis producer in Denmark. Teaming up with the Dutch company speaks to Neufeld’s plans for international expansion, and it also gives Aphria a piece of the niche organic cannabis market. On paper, leaving the Americans behind doesn’t seem so terrible when you have a growing international footprint in cannabis. Whether or not the momentum holds remains to be seen
At the end of July, Aphria secured a second $25 million loan from WFCU Credit Union. This, combined with the revenue from the Liberty Health share purchase agreement, could give Aphria quite a bit of leg room just in time for Canadian cannabis legalization. Canada’s new law will set change in motion across the North American continent. The point is, no one knows at this time what’s going to happen. A year ago California was et to be the biggest cannabis market in the world, and now the state can’t even collect on promised tax revenue nor fight back the black market. The loss of a huge asset in the US is nothing to cheer about just yet.
Do they have a good thing growing?