Aphria CEO Sees Supply Shortages in First Days of Legal Pot

(Bloomberg) -- Aphria Inc.’s chief executive officer expects “sold out” signs at cannabis retailers across Canada following legalization next week, as licensed producers struggle to meet demand.

“There will be supply shortages in the early stages of adult use, including from Aphria, as the industry crosses a major inflection point,” Vic Neufeld, CEO of the Leamington, Ontario-based pot producer, said on an earnings call Friday. “There will not be complete satisfaction by any of the provincial regulators out of the box. The pipeline fill is not going to be there.”

Neufeld said he’s confident that Aphria will be able to meet demand for both recreational and medical marijuana “over the medium and longer term,” but also expressed concern that Canada’s legalization experiment could founder if supply-chain issues aren’t fixed quickly.

“If it’s not remedied by January then this whole program is in big trouble,” he said.

A recent study by the University of Waterloo and C.D. Howe found that the supply of legal pot in Canada will only meet 30 to 60 percent of demand after legalization.

Aphria’s annual production capacity is currently 35,000 kilograms but is expected to reach 255,000 kilograms by November once an expansion at its Aphria One facility is completed. The company sold 1,778 kilograms of pot at an all-in cash cost of C$1.83 per gram in the latest quarter, compared with 1,312 kilograms at C$1.60 per gram in the fiscal fourth quarter.

Revenue was C$13.3 million ($10.2 million) in the quarter ended Aug. 31, compared with C$6.1 million in the same period the prior year, due to an increase in wholesale orders, the company said Friday. Aphria reported an adjusted loss before interest, taxes, depreciation and amortization of C$4 million compared with a profit of C$2.2 million in the same quarter of 2017.

Aphria was little changed at C$19.60 per share at 10:50 a.m. in Toronto after gaining about 21 percent this week. The Globe and Mail reported Wednesday that tobacco giant Altria Group Inc. was in talks to buy a minority stake in the cannabis producer, although Aphria later said it doesn’t currently have an investor agreement in place.

Canada will legalize recreational marijuana use on Oct. 17.

©2018 Bloomberg L.P.