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Written by
Chris Sandburg
Published on
May 25, 2017
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APHRIA INC COM NPV (OTCMKTS:APHQF) is one of the most interesting cannabis stocks on the market today. It is one we have looked at on a number of occasions before and highlighted, in particular, the fact that it has managed to maintain valuation growth (for the most part) at a time when shorter-term operators are pulling profits off the table in a number of its competitors. The company just announced a US expansion, and when taken in combination with a number of recently announced domestic developments, we think the latest move could be a real value driver going forward.Here is a look at what just happened and where it fits into the story.Aphria, for those not familiar with the company, is a cannabis cultivation company based in Canada. It is one of the largest in the industry and if its stage IV expansion phase comes to fruition over the coming 12 months, will become the largest in terms of grow space in the country. It's profitable, having recorded around C$5 million net income on revenues of C$18.6 million during the nine months through end-Feb 2017, and is extremely well-capitalized, having raised C$100 million towards the end of last month, with the majority of this capital earmarked for funding for the above-mentioned expansion in Canada.Getting to the latest development, the company just announced that, through a strategic partnership with an entity called DFMMJ, it has closed an agreement with a Tallahassee, FL-based company called Chestnut Hill Tree Farm. Chestnut Hill is a medical cannabis cultivation company (basically doing the same in Florida as Aphria is already doing in Canada, but at a smaller scale right now) and the company holds one of just seven licenses granted in Florida required by law for these sorts of companies to conduct cultivation and distribution operations. Florida represents approximately 14% of the US medical cannabis market, with the latter having a total estimated market size at maturity of over $1.1 billion. That's a more than $154 million market served by just seven licensees, of which Chestnut Hill, and by proxy now Aphria, is one.The plan is to take hold of the license and, essentially, take over the entire operation from current management. Once the license is in hand, DFMMJ plans to significantly expand the current production capabilities and implement this expansion using Aphria's technology and cultivation methods/expertise.So why is this important?Well, it represents the company's first move into the US in this arena. Medical cannabis is a very large market, but last year's recreational ballots have basically changed the game, increasing the potential market for these sorts of cultivation companies ten-fold or more at maturity. The same is true in Canada. With Trudeau currently targeting the pushing through of legislation that could see recreational cannabis become legal across Canada as early as second quarter next year, we're basically looking at two large, developed nation's markets that are set to explode.This demand explosion needs to be absorbed, and a company like Aphria is perfectly positioned to do the absorbing. Perfectly positioned in Canada, that is. In the US, not quite so, but if the Florida operations can serve as a springboard to bring the company's US presence on par with that of its Canadian reputation, then there's no reason Aphria can't become one of the leading US cultivators and distributors in both the medical, and eventually recreational, arenas.As mentioned cash isn’t too much of an issue near term, but as the cash raised from the latest issue allocates towards the Canadian facility expansion, we may see a raise dedicated to funding US expansion. This one's not got a history of anything toxic, and it's just uplisted in Canada meaning any issue should be favorable, but the potential for dilution should be kept in mind.We will be updating our subscribers as soon as we know more. For the latest updates on APHQF, sign up below!Disclosure: We have no position in APHQF and have not been compensated for this article.

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