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Jan. 22, 2020, 7:13 a.m. EST

Aphria stock boosted by news of certification that will allow the Canadian company to ship medical cannabis to the EU

Canadian cannabis company is expecting to make first shipments to the EU by the end of May

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By Ciara Linnane, MarketWatch


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Aphria Inc.’s U.S.-listed shares rose about 3% Tuesday, after news that the company has achieved GMP status in the European Union, clearing the path for it to start selling medical cannabis to pharmacies in Germany and other countries.

The GMP certification—the acronym stands for Good Manufacturing Practices—is key for the company to access EU markets. Aphria /zigman2/quotes/207425803/composite APHA -2.82% /zigman2/quotes/205566616/delayed CA:APHA -3.53%  expects to start its first shipments in the fourth quarter of fiscal 2020. The company has a June-to-May fiscal calendar.

Jefferies analyst Owen Bennett said that the move may drive upside to his bullish estimates for Aphria, which remains his top pick among Canadian cannabis companies following its second-quarter earnings released last week. The stock fell immediately after the numbers were released as it posted yet another loss and revenue that rose sharply but still missed consensus estimates.

Aphria also lowered revenue guidance for fiscal 2020, which Bennett said means he now expects them to meet the low end of its estimates, instead of missing it.

See now: Aphria stock slides on weaker-than-expected earnings, but other cannabis shares shine

“For us, the most encouraging aspect of Aphria’s delivery to date is the sustained demand it is seeing for its brands in the recreational channel, with this translating to impressive share gains,” Bennett wrote in a note to clients. In Ontario, the company has a 14% share now compared with 12% last quarter, 9% at the start of the summer and just 6% in 2018.

See: Shorting cannabis stocks was a billion-dollar idea in 2019

“Not only does this look good for the introduction of 2.0 products, it also positions the company well for its upcoming step change in capacity once Aphria Diamond products are introduced to the market in Q4,” he wrote. “Our own analysis also shows that the Riff and Good Supply brands are two of the best-positioned brands in the market in terms of THC-potency, price per gram and average reviews.”

Further upside could be provided by an elimination of the vape bans in Alberta and Quebec, and if the company succeeds in launching beverages in fiscal 2020, said the note.

Jefferies rates the stock a buy, although it lowered its stock-price target to C$10.30 ($7.88) from C$11.00, to reflect its lowered guidance.

See also: Aurora Cannabis now has a $1 price target from two analysts

At Alliance Global Partners, analyst Aaron Grey initiated coverage of Aphria stock on Tuesday with a buy rating and C$11 price target. The analyst said Germany is one of the company’s most significant opportunities after it won five of 13 domestic cultivation licenses, while its CC Pharma unit gives it access to 13,000 pharmacies.

“We look for fundamentals to improve from continued success in the Canadian market and beginning of sales in Germany – and see potential partnerships within the US and other markets as a potential catalyst for the stock,” Grey wrote.

Read also: Organigram stock soars 35% after earnings and boosts broader cannabis sector

Aphria shares have gained 15% in the last three months, while the ETFMG Alternative Harvest /zigman2/quotes/204332491/composite MJ -1.26%  has fallen 6% and the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.05% has gained 10.5%.

Cannabis Watch: For all of MarketWatch’s coverage of cannabis companies: click here

/zigman2/quotes/207425803/composite
US : U.S.: NYSE
$ 4.14
-0.12 -2.82%
Volume: 3.84M
Feb. 21, 2020 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.05 billion
Rev. per Employee
$147,410
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/zigman2/quotes/205566616/delayed
CA : Canada: Toronto
$ 5.46
-0.20 -3.53%
Volume: 1.79M
Feb. 21, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.38 billion
Rev. per Employee
$190,843
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/zigman2/quotes/204332491/composite
US : U.S.: NYSE Arca
$ 16.48
-0.21 -1.26%
Volume: 635,662
Feb. 21, 2020 8:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,337.75
-35.48 -1.05%
Volume: 2.12B
Feb. 21, 2020 5:16p
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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