Aphria Partners With Schroll Medical; Is It on the Diageo Shortlist for Marijuana Partner?

Diageo-Aphria Partnership Potential

Marijuana stocks are experiencing a renaissance as of late, none so more than Aphria Inc (OTCMKTS:APHQF, TSE:APH). After having spent much of 2018 in the dumps, the Aphria stock forecast has finally brightened, with the stock shooting up by 90% in the past month.

This jump was spurred on by the Big Alcohol-marijuana partnership between Constellation Brands, Inc. (NYSE:STZ) and Canopy Growth Corp (NYSE:CGC). Now there are rumors that Diageo plc (NYSE:DEO), a U.K.-based spirits maker, is looking to get into the market.

“We never comment on speculation,” said a Diageo spokeswoman in late August regarding rumors that the company was looking to enter the marijuana market. “As we’ve said before, we are monitoring this space closely.” (Source: “Canadian Pot Stocks Jump After Diageo Reported Discussing Deal,” Bloomberg, August 24, 2018.)

Few things have been as powerful in the legal marijuana market as massive investments by Big Alcohol.

In 2017, Constellation Brands made its first foray into CGC stock, and the marijuana industry went on a massive run at the end of the year.

Then, at the end of August 2018, Constellation Brands once more invested in Canopy Growth, and marijuana stocks surged (by hundreds of percentage points in some cases).

While a Diageo-Aphria partnership is one of the several rumored landing spots for Diageo, the move would likely result—depending on the value of the deal—in a massive surge for Aphria stock’s price, on top of what the company has already accomplished in 2018.

While 2018 has not been kind to the company’s share price so far, the Aphria stock forecast has remained bright for some time due to the company’s savvy plays.

Aphria Stock Forecast

Aphria stock’s growth potential is strong—with or without the possible Diageo-Aphria partnership.

While an Aphria-Diageo stock forecast would certainly look stronger, that doesn’t mean investors should discount Aphria offhand. There’s still a lot to like about the company.

First, Aphria has entered into several supply agreements this year, the most recent one with Emblem Corp (OTCMKTS:EMMBF, CVE:EMC).

Emblem is set to purchase up to 175,000 kilograms of cannabis under the Access to Cannabis for Medical Purposes Regulations (ACMPR) over five years. The deal was valued at CA$12.7 million (plus a stake in Emblem). (Source: “Emblem signs supply agreement with Aphria to purchase up to 175,000 kg equivalents of cannabis products over five years,” Nasdaq, September 12, 2018.)

Aphria also signed a supply agreement with the province of Nova Scotia at the end of August, once more scoring a big win as Canadian marijuana legalization approaches.

Chart courtesy of StockCharts.com

Hand in hand with these supply agreement signings is Aphria’s production capacity growing and the company’s push toward global expansion.

Aphria recently signed a deal with Schroll Medical in Denmark, which will see the two companies partner in the cultivation and distribution of organic medical cannabis. (Source: “Aphria partners with Schroll Medical in Denmark to produce organic medical cannabis for the worldwide market,” Cision, September 4, 2018.)

That arrangement will also tap into Aphria’s presence in Germany via Aphria Deutschland GmbH, which will manage the distribution.

Earlier in the year, Aphria was involved in a South American and Central American deal worth about CA$200.0 million. (Source: “Aphria announces proposed acquisitions in Latin America, Jamaica worth around $200 million,” Financial Post, July 17, 2018.)

The company acquired three assets based in Colombia, Argentina, and Jamaica—which are held by LATAM Holdings Inc. They were acquired by Scythian Biosciences Corp. (OTCMKTS:SCCYF), an Aphria subsidiary.

This was one of the first and strongest forays into the lucrative South American market. It allows Aphria to expand globally as the company establishes foundations on the continent and will likely lead Aphria’s production capacity to grow because South America is a far cheaper venue in which to grow cannabis.

Aphria’s focus on the Canadian market as recreational marijuana nears has not been slacking either.

All of this leaves the company with a strong, multi-faceted, and multi-layered approach to the marijuana market that has me bullish on Aphria stock.

Analyst Take

For much of 2018, the Aphria stock forecast was a waiting game.

When the stock price was plummeting, I cautioned readers to not lose hope, and instead to wait for the nadir to hit before reinvesting at a bargain price.

My predictions proved to be sound. While APHQF stock gave long-term investors a fright in early 2018, the second half of the year has been improving by leaps and bounds.

Meanwhile, the soon-to-be-legal recreational marijuana market in Canada will likely boost many cannabis stocks in the near term. The true future of the industry, however, lies in looking beyond the next horizon.

Aphria has done just that, and it appears to be one of the stronger picks, especially if the Diageo-Aphria partnership comes to fruition.