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Jan. 15, 2020, 6:56 a.m. EST

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

Tilray names a former Molson executive as CFO and a former Revlon executive as operating chief

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By Ciara Linnane, MarketWatch


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Aphria Inc.’s U.S.-listed shares slid 9% Tuesday before paring their losses, after the Canadian cannabis company posted weaker-than-expected revenue for its second quarter and revised down its guidance to reflect issues including a slower rollout of retail locations in Ontario.

The company /zigman2/quotes/207425803/composite APHA -5.31%   /zigman2/quotes/205566616/delayed CA:APHA -4.95% swung to a net loss of C$8.2 million ($6.3 million), or 3 cents a share, in the quarter to Nov. 30, from a profit of C$54.8 million, or 22 cents a share, in the same period a year ago. The FactSet consensus was for a per-share loss of 3 cents.

Net revenue rose more than fivefold to C$120.6 million ($92.2 million) from C$21.7 million, but was below the FactSet consensus of C$129.8 million.

Chief Financial Officer Carl Merton said the company was updating guidance “to primarily reflect certain market dynamics,” including the rollout issue in Ontario, where more than 40 store openings are still pending. Other factors include a temporary ban on vape products in Alberta while it studies their impact, the higher costs of third-party supply due to the timing of a license and a slowing of growth in Germany, he said. The company is now expecting full-year revenue of C$575 million to C$625 million.

Read: Cannabis packager KushCo revenue damaged by vape crisis

Jefferies analyst Owen Bennett said overall the report supported his bullish thesis on the stock, highlighting execution and sales trends as positives.

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

“On sales trends, recreational sales were up 46% QoQ with volumes up 68%, while they also saw a need to buy wholesale in the quarter due to demand outstripping supply,” the analyst wrote in a note. “This bodes well for further supply due to come online from the Diamond facility, and should give confidence that Aphria’s products will continue to take share.”

While bears can focus on the revised guidance as a negative, it’s likely more to do with Alberta’s vape ban as Aphria had focused on vapes, Bennett wrote. And the updated guidance remains above consensus, he wrote.

Jefferies rates Aphria a buy with a C$11 price target that is about double its current trading level.

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The rest of the sector recouped early losses to trade higher in afternoon trade.

Tilray shares /zigman2/quotes/209129655/composite TLRY -10.74% were rallying 13.6% after the company announced the appointment of two new executives from consumer companies. Tilray said it has named former Molson /zigman2/quotes/205165133/composite TAP -1.97% executive Michael Kruteck as its chief financial officer, replacing Mark Castaneda, who will take on the role of strategic business development. The company also hired former Revlon /zigman2/quotes/207032377/composite REV -5.00% executive Jon Levin as chief operating officer.

Market leader Canopy Growth shares /zigman2/quotes/200603886/composite CGC -7.22% /zigman2/quotes/202205609/delayed CA:WEED -6.68% reversed early losses to trade up 4%. The company is among eight to have offered proposals to exclusively operate recreational cannabis sales in the province of New Brunswick, pitting itself against Loblaw Cos. /zigman2/quotes/208874772/delayed LBLCF -0.65% /zigman2/quotes/205942785/delayed CA:L -0.21% , one of Canada’s biggest supermarket chains, according to Marijuana Business Daily.

Read now: Marijuana companies are bad at forecasting, analyst says

Recreational cannabis sales in New Brunswick came to C$17 million in the second half of 2019, according to the website. The province is expecting to execute a deal by July 3.

In other news, Massachusetts-based Curaleaf /zigman2/quotes/205334348/delayed CURLF -5.86%   /zigman2/quotes/203485866/delayed CA:CURA -6.44% said it has received a preliminary processing license in Utah. Shares rose 5.8%.

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

Aurora Cannabis /zigman2/quotes/210559470/composite ACB -7.19% /zigman2/quotes/203734337/delayed CA:ACB -5.88% was up 7%, Cronos Group Inc. /zigman2/quotes/206842762/composite CRON -10.91% /zigman2/quotes/202715342/delayed CA:CRON -10.06% rose 3% and Organigram Holdings Inc. /zigman2/quotes/209289540/lastsale OGI -6.72% /zigman2/quotes/202287350/delayed CA:OGI -0.44% /zigman2/quotes/202287350/delayed CA:OGI -0.44% was flat.

More broadly, the exchange-traded fund ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -5.46% rose 2.8%, while the Horizons Marjiuana Life Sciences Index ETF /zigman2/quotes/200444869/delayed HMLSF -5.43% gained 2.7%.

The S&P 500 /zigman2/quotes/210599714/realtime SPX -3.35% was up 0.2% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -3.56% was up 0.5%.

Cannabis Watch: Read all of MarketWatch’s recent coverage of the cannabis business

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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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