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Aphria vs. Canopy Growth: Which Cannabis Stock is a Better Buy?

Cannabis stocks Aphria (APHA) and Canopy Growth (CGC) have seen impressive runs in November. Which stock is a better buy now?

Election Day sparked a rise in cannabis stocks as Joe Biden snagged the White House, and marijuana initiatives passed across the country (18 measures legalizing medical marijuana, 10 measures legalizing recreational use). After four years of an administration that opposed the legalization of marijuana, the initial euphoria was rooted in the hopes of changing federal laws. 

The enthusiasm cooled when it became apparent the anticipated Democratic blue wave did not materialize and the Senate could remain in GOP control, thus offering a continuation of the political status quo that has stalled legalization. Whether the next president and new Congress will address the continued federal prohibition on marijuana remains to be seen – during the election campaign, Biden’s campaign played up his support of decriminalizing marijuana but was silent on legalization. 

Two prominent Canadian-headquartered cannabis companies, Aphria (APHA) and Canopy Growth Corporation (CGC), came into Election Day seeking to make their presence felt within the U.S. market. To date, their stock performances remain vibrant.

Latest Developments

Both APHA and CGC focus on the medical and recreational marijuana markets. APHA, which is the sector’s dominant company within Canada, gained a foothold in Europe via the January 2019 acquisition of the German CC Pharma. Earlier this month, the company entered the U.S. market with the $300 million acquisition of Sweetwater Brewing Company, one of the nation’s largest independent craft brewers.

Over at CGC, its sports drink subsidiary BioSteel Sports Nutrition Inc. announced an exclusive partnership last month with the beverage distribution companies Manhattan Beer and Reyes Beer Division. But the company isn’t forgetting its cannabis roots: In June it modified a deal to acquire Acreage Holdings pending changes in U.S. federal marijuana laws, and earlier this month it gained business and celebrity media attention with the launch of a Martha Stewart-branded line of CBD wellness supplements. 

Recent Financial Results

APHA’s Q1 2021, which ended on Aug. 31, recorded C$145.7 million revenue, up 16% year-over-year. However, revenue dipped by 4% from the previous quarter, which the company attributed to pandemic disruptions resulting in fewer in-person visits by medical marijuana patients to their healthcare providers, pharmacies and dispensaries. 

CGC’s Q2 2021, which ended Sept. 30, saw C$135 million in revenue, up 77% compared year-over-year; the company also recorded an uptick from the C$110 million in revenue during Q1 2021. Unlike APHA, CGC operates a retail network across Canada that mostly weathered the pandemic’s economic tumult on the retail sector. The company’s late-2018 acquisition of vaporizer maker Storz & Bickel also helped in the flow of its revenue stream.

One difference that stands out between the companies involves EBITDA: APHA recorded an adjusted EBITDA of C$10 million, its sixth consecutive quarter of positive results, while Canopy Growth recorded negative adjusted EBITDA of C$85.7 million for its most recent quarterly report.

POWR Ratings

Both APHA and CGC are rated “Strong Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for both these stocks:

APHA has an “A” for for Trade Grade, Buy & Hold Grade, Peer Grade, and “B” for Industry Rank. It is ranked #12 out of 240 stocks in Medical – Pharmaceuticals.

CGC mirrors APHA with A” for Trade Grade, Buy & Hold Grade, Peer Grade, and “B” for Industry Rank. It is ranked #5 out of 240 stocks in Medical – Pharmaceuticals.

The Winner

Both companies have demonstrated an intelligent strategy of portfolio diversification, although CGC has a head start in staking out the U.S. market. Still, APHA can claim to be in more financially robust shape than its competitor.

At the moment, I believe a slight edge might be given to APHA, but this can change in 2021 if CGC continues to expand its U.S.-based partnerships and seeks out another company or two for acquisition. APHA has offered no clues on whether it will pursue other U.S. acquisitions or if it will aim its viewfinder elsewhere next year.

Want More Great Investing Ideas?

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APHA shares were trading at $7.17 per share on Wednesday afternoon, up $0.32 (+4.67%). Year-to-date, APHA has gained 37.36%, versus a 14.17% rise in the benchmark S&P 500 index during the same period.



About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output.

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