Aleafia (ALEF) Sees Momentum Halted After Revealing Q1 Results

Aleafia Health Inc. [stock_market_widget type="inline" template="generic" color="default" assets="ALEF" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] saw its recent momentum halted this morning when it announced a net loss of $20.2 million for Q1 2019.

A one-time, non-cash payment to complete its acquisition of Emblem accounted for $13.2 million of that loss, but it was enough to halt the stock’s recent rally. ALEF decreased from $2.77 on Feb. 5, 2019, to $1.56 on Apr. 29, despite completing its $175 million purchase of Emblem on Mar. 14.

The firm’s share price tumbled again after it reported a net loss of $9.7 million on operations in 2018, and it was down to $1.38 on May 3. However, it increased 26.8% last week and reached $1.75 as trading closed.

That could be attributed to the update on its expansion into Germany, where it is setting up a joint venture with pharmaceutical wholesaler Acnos Pharma GmbH. Acnos distributes to 20,000 pharmacies across Germany and it has many more accounts in the rest of Europe.

Yet today’s news has halted the momentum and ALEF opened at $1.73 before decreasing to $1.66 within the first hour of trading.

Capacity Expanding

The firm reported revenue of $1.5 million for the first quarter of 2019, up from $100,000 in Q1 2018. It has strengthened its balance sheet since the Emblem acquisition and it had cash of $61 million at March 31, 2019, compared to $29.2 million at December 31, 2018.

Yet there is still a risk it could burn through that quickly and be forced into a dilutive raise. Otherwise, Aleafia looks to have considerable upside, given its small market cap and its strong potential for growth since swallowing up Emblem.

It saw the two companies’ medicinal cannabis clinics, Canabo Medical Clinics and GrowWise Health, integrate and the combined entity should receive synergistic savings as a result of merging. Between them they have seen more than 60,000 patients and that provides the firm with a wealth of insight.

Aleafia is now on course to produce 138,000kg of cannabis flower per year, while it will have extraction capacity of 50,000kg, which could be important as edibles and other concentrates are legalized in Canada this October.

Upside for ALEF?

Last week Health Canada announced that it has overhauled its cannabis licensing process in a bid to cut waiting times and alleviate supply shortages across the country. The news received a mixed response from industry insiders, but Aleafia was one firm to praise the regulator for its foresight.

“These changes will alleviate product shortages and application backlogs, while spurring job creation in local communities as more completed facilities become operational,” said Aleafia chief executive Geoffrey Benic. He added that this move will help cut out the thriving black market by making the legal cannabis industry more competitive.

Benic’s views were echoed by his counterpart at GTEC Holdings, Norton Singhavon, who praised Health Canada for fostering the growth of the Canadian cannabis industry.

Aleafia also revealed that it has just completed its largest ever individual sale, worth $700,000. In the first 38 days of Q2, it brought in gross revenue of $1.2 million, so investors should expect significant sequential revenue growth when it next reveals its financials.

“In 2018, Aleafia Health laid the groundwork for a breakthrough 2019, and we have now begun to see the results of this work,” said Benic.

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GTEC Holdings is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Martin Green
Martin Green is an experienced journalist with a strong focus on the cannabis, alcohol, and gambling industries. He is particularly interested in the political issues affecting the global marijuana trade, and he has a keen focus on regulation changes and legal topics. He holds a BA English Literature, MA Creative Writing and a National Qualification in Journalism diploma. He has worked in journalism since 2009 and written for a broad range of newspapers, business titles and magazines, including The Sun, The Metro, The Journal, Livestrong, Drinks Retailing News, Harpers, Sportsbook Review, Vital Football, Essex Live and Surrey Live. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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