It’s always big news when a cannabis company records a profit because it’s simply not all that common to do so. Typically, companies in the industry have been plagued with rising costs as a result of expansion, which has often prevented them from finishing in the black.
It was impressive when Aphria (TSX:APHA)(NYSE:APHA) released its Q1 results back in October that saw it post a profit of more than $16 million. Back in August, the company had a similar result, as in Q4 it also had a positive result.
The knock on the results, however, is that the profit hasn’t been a result of Aphria’s day-to-day Canadian operations. Instead, it has been thanks to CC Pharma and non-operating income that has given the company’s financial results a boost.
It would be a far different result if Aphria has been profitable due to its core operations, but that hasn’t been the case. While it may have been profitable, a positive net income figure doesn’t tell the whole story.
Investors have noticed that as well, as despite the boost the stock got from its Q4 results, it ultimately erased those gains as Aphria’s share price has actually been down from August 1 through to the end of October (and its results over the past year have been even worse).
One cannabis company that’s recently posted an impressive result without the aid of nearly as much noise on its financials is Liberty Health Sciences Inc (CNSX:LHS). In late October, Liberty Health released its quarterly results up until August 31, and the company also posted a profit of $22.9 million.
What made the results more impressive than Aphria’s were that Liberty Health had an operating profit of more than $9.2 million. While its net income did get a boost from non-operating items including the sale of Chestnut Hill Tree Farm, which added $14 million to its bottom line, the company still would have been profitable without the gain. It was a big improvement from the prior year when Liberty Health posted a loss of $5.6 million.
One of the key reasons the company was able to avoid a similar fate this time around was that its operating expenses increased by just 3% from last a year ago despite Liberty Health’s sales rising by nearly 380%.
It wasn’t a totally unassisted result for the company, however, as fair value adjustments to its biological assets gave Liberty Health more than $9.6 million more in gross profit for the quarter, thus enabling it to turn a profit.
However, its gross profit before the adjustment was just over $5 million, which would have put the company close to breakeven with operating expenses of $5.4 million. Aphria, meanwhile, got a $17.9 million boost from fair value adjustments in its most recent quarterly results.
Bottom line
Liberty Health wasn’t without noise on its most recent financial results, but the company’s performance during this past quarter was very impressive, and I’d argue that it was a lot stronger than Aphria’s, at least from a profit standpoint.
One trend we’ve witnessed, particularly from U.S. cannabis companies, is that they’re often in better shape than their Canadian counterparts.
One of the reasons for this is that a company like Liberty Health can generate strong numbers just by focusing on the Florida market. For Aphria and other Canadian producers, however, there’s a significant need to expand throughout the country and even worldwide just to be able to tap into larger markets, though it’s costly to do so.
Without having to focus on aggressive expansion, Liberty Health is in a better position to be able to stay above breakeven, so it’s no surprise that its numbers look a lot better as a result.
