With all of its facilities in Canada up and running, Aphria‘s (NASDAQ: APHA) potential production capacity for dried cannabis will soar to 255,000 kilograms per year. With an average selling price of CA$5.46 per gram in the most recent quarter, that seems like it would make make Aphria a huge cash flow machine that will deliver riches to shareholders.
But there’s a catch: As it turns out, while Aphria produced over 31,000 kilograms of dried cannabis in the third quarter of 2020, it sold nowhere near that amount. In fact, the market gobbled up less than 15,000 kilograms of the company’s cultivated cannabis. At this rate, the company only needs about 60,000 kilograms of annual production capacity. The discrepancy has some investors wondering whether Aphria will fall victim to countless goodwill write-offs and material impacts to its business because of oversaturation in the Canadian marijuana market.
Thankfully, shares of Aphria have been so oversold that even if the above risk factors materialize, investors will still be able to grab them with a wide margin of safety.