Aphria Inc (TSX: APHA) (NYSE: APHA) announced this morning that the firm has secured an $80 million secured credit facility for its Aphria Diamond cultivation facility. The financing follows the announcement early last month that Aphria Diamond received its cultivation license after an extensive waiting period.
The financing was put together by an undisclosed major Canadian chartered bank whom acted as sole book runner in the financing. Overall, a group of lenders is responsible for the total $80 million secured in financing. The credit facility is secured by Aphria Diamond’s assets and balance sheet, while pricing is “based on a set margin over the Bank’s Canadian Prime Rate or Bankers’ Acceptance and a pricing grid linked to certain financial ratios.”
Meaning, Aphria has to maintain certain financial ratios to ensure a reasonable interest rate. At outset the firm has identified that it expects a “low to high” 5% interest rate per annum. The financing is for a period of three years.
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One thing we at The Deep Dive like to look at in such situations, is how much cannabis needs to be grown to offset the debt. In this instance, there is no exact preliminary data for expected all-in cash costs to produce each gram of cannabis, however we can utilize Aphria’s cultivation figures from the previous quarter as a baseline. Many will acknowledge that the Diamond facility is expected to produce cannabis at a much lower cost per gram, which is fair – however, it will likely be sold on a wholesale basis, which will offset the average price per gram.
Last quarter, Aphria managed to generate $30.785 million in cannabis revenues on a net basis, while selling 5,969 kilograms equivalent of cannabis. This breaks down to an average sale price of $5.15 per gram. We also know that the “all-in” cost per gram was $2.52 for the same period, giving us a gross profit of $2.63 per gram for the period. While this profit margin is likely high given recent price compression exhibited in the space, we’ll run with it for now.
At a gross profit of $2.63 per gram, Aphria will thereby have to sell approximately 30,418 kilograms of cannabis to pay off its announced $80 million credit facility, before interest is factored in. What must be considered however, is that approximately 19% of that figure is what the issuer sold in the previous quarter.
Overall, this may be viewed as reasonable to investors – Aphria Diamond currently has an annual growing capacity of an estimated 140,000 kilograms per annum, and the loan is for a period of 3 years.
Aphria Inc last traded at $4.74 on the New York Stock Exchange.
Information for this briefing was found via Sedar, Health Canada and Aphria Inc. The author has no affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
