Grizzle Aphria Conviction Call Report Nov 1 2018

[RESEARCH]
APHRIA INC.
GRIZZLE CONVICTION SERIES
SCOTT WILLIS, CFA

EXECUTIVE SUMMARY November 1, 2018
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Aphria is a ‘conviction call’ core holding for Grizzle in the cannabis sector, with an industry GRIZZLE.COM
for more investment
leading cost structure, compelling valuation, and top-quality management team.
research
The company has positioned itself to be one of the largest, most profitable producers of
cannabis globally, an industry that has the potential to be worth in excess of $200 billion.
Additionally, the stock’s inexpensive valuation provides a margin-of-safety for investors, a
truly unique characteristic in a sector comprised of companies that are unprofitable and
greatly overpriced.
Aphria ticks all the right boxes for Grizzle: attractive valuation, low-cost production, M&A
target, and best in class management team.
BASE CASE SCENARIO ($40/SH)
Aphria reaches funded growing capacity of 210,000 kg in 2019 and expands to

450,000 kg by 2022. Sales mix moves to 20% flower, 53% concentrate, and 27%
edibles with EBITDA margins between 24%-28%, depending on the sales mix. Cost
of sales remains at $1.70/gram, while pricing falls 20% by 2022.
SECULAR UPSIDE ($200/SH)
Aphria becomes a global leader in many future growth areas of cannabis such
as prescription drugs, beauty, supplements, alcoholic beverages, and global
recreational cannabis. Aphria captures 1% market share in these cannabis
verticals by 2035.
APHRIA INC. | GRIZZLE CONVICTION SERIES 1

TABLE OF CONTENTS
EXECUTIVE SUMMARY 1
CANNABIS SECTOR OUTLOOK: SECULAR

INDUSTRY GROWTH & M&A UPSIDE 3
WHY APHRIA? 5
APHRIA STOCK TRADES AT A DEEP DISCOUNT 6
APHRIA IS ONE OF THE HIGHEST QUALITY

TAKEOVER TARGETS IN CANNABIS 7
LOWEST GROWING COSTS IN THE INDUSTRY

ENSURE INDUSTRY LEADING PERFORMANCE 8
WHY A LOW-COST STRUCTURE IS A KEY PATH

TO ATTRACTIVE RETURNS IN COMMODITIES 9
THE APHRIA MANAGEMENT TEAM IS THE

BEST IN THE BUSINESS 13
ASSET REVIEW 16
PRODUCTION FORECAST 25
REVENUE FORECAST 28
APHRIA’S PRODUCT ECONOMICS 32
APHRIA IS FUNDAMENTALLY WORTH $40/SH TODAY

WITH UPSIDE TO $200/SH LONGER TERM 34
CONCLUSION 38

CANNABIS SECTOR OUTLOOK: SECULAR
INDUSTRY GROWTH & M&A UPSIDE
SECULAR TAILWINDS
The nascent global cannabis industry presents one of the most compelling long-term
structural investment themes in a generation. Cannabis has been unfairly demonized in
the developed world for the last century. We are now at a pivotal juncture globally where
both medicinal and recreational uses are being legalized at an accelerated pace.
Canada is the epicentre of the global shift in societal perception of cannabis in both the
medical and recreational context. This very forward and liberal stance has afforded the
Canadian cannabis industry a meaningful head start globally. The largest companies in the
sector (Canopy Growth, Aurora Cannabis, and Aphria) have raised significant capital and
are taking a global strategic perspective to long-term growth.
A lineup outside a Ste-Catherine Street cannabis store in Montreal, QC | Source: Charles Contant/CBC
The opioid crisis plaguing America is in Grizzle’s view one of the most pressing reasons
to legalize cannabis at the federal level in the United States. Opioids are threatening the
economic competitiveness of America, resulting in workers dropping out of the labour
force. American states with legal medical cannabis have 25% lower death rates from opioids
(JAMA Internal Medicine, 2014).
RISE IN OPIOID OVERDOSE DEATHS
12
100,000 POPULATION
DEATHS PER
0
2000 2008 2016
YEAR
Source: CDC National Vital Statistics System Mortality File

Grizzle estimates the total cannabis opportunity set is worth in excess of $200
billion globally, a set of consumer and medical products that would include dried
flower, oils, beverages, beauty, supplements, and medicinal products. The prize for
those left standing is significant indeed.
THE MERGER & ACQUISITION BOOM

The investment environment for cannabis stocks has radically changed from the
beginning of 2018. It is now driven by expectations of new partnerships with consumer
goods companies, triggered by beer and spirits maker Constellation Brands’ $5 billion
investment in Canopy Growth on Aug. 15, 2018.
Other global multinational consumer companies have been put on notice by

Constellation. They have to either pony up now to enter the cannabis sector or play
a wait-and-see approach. The challenge for consumer companies is that they have
effectively gone ex-revenue-growth as a result of their portfolio of outdated brands
and are desperately seeking new products that appeal to millennials.
Diageo, Coca-Cola, and Altria are all rumoured to be considering deals in the sector.
Consumer companies interested in participating in the cannabis sector in a meaningful
way don’t have the luxury of waiting a year or two; a veritable lifetime in branding and
product development.
We believe it is for this reason that cannabis investors should maintain core holding in
high-quality companies that are targets for M&A. There is no way to know when these
deals will happen so it makes sense to maintain a foothold in the sector. These core
high-quality holdings currently trade at valuation multiples below that of potential
acquirers — specifically Spirits, Pharma, Tobacco, and Beer companies.

WHY APHRIA?
APHRIA STOCK TRADES AT A DEEP DISCOUNT
Aphria trades at a 50% discount to the average cannabis industry enterprise value to
EBITDA multiple (Aphria at 6x versus Cannabis industry at 12x). This discount persists even
though Aphria is the third largest cannabis company globally. With the lowest industry
cost structure Aphria should generate above average profitability in a newly legal market
leading to a rerating in the stock. If Aphria trades in line with the market average there is
more than 100% upside to the current stock price.
APHRIA IS ONE OF THE HIGHEST QUALITY TAKEOVER

TARGETS IN CANNABIS
Aphria possesses the following four characteristics that make it one of the most desirable
takeover targets in the cannabis industry.
• A diversified group of assets all over the world and growing capacity that can scale to
meet demand
• A management team that can execute with a history of business success
• A cost structure that maximizes the return of an outside investor
• A low valuation compared to similar sized cannabis stocks
LOWEST GROWING COSTS IN THE INDUSTRY MAXIMIZE

PROFITABILITY
Aphria’s production costs are 45% lower than the next licensed producer and 60% below
the industry average. The company is integrating robotics and automation on a scale never
seen in a legal cannabis greenhouse, allowing them to maintain and potentially grow their
cost lead over peers. Investing in the low-cost producer mitigates risk in periods where
cannabis flower prices are low while also amplifying upside with the low-cost producers
generating above average cashflow and margins.
THE APHRIA MANAGEMENT TEAM IS THE BEST IN THE

BUSINESS
The cannabis industry has a real shortage of qualified management teams. There is an
abundance of financiers with little on the ground knowledge of how to build and operate
greenhouses, grow quality cannabis, or build brands.
Aphria has a management team with decades of experience in the following critical areas
that will determine success in the emerging cannabis industry.
• Production and quality assurance of highly regulated consumer health products
• Cultivation of produce and construction of greenhouse assets at scale
• Domestic and global distribution of consumer health products
• Creation and management of global consumer brands

APHRIA STOCK TRADES AT A DEEP
DISCOUNT
The concept of investing with a margin of safety cannot be understated in a high-growth
emerging industry like Cannabis. No one knows what the future will look like, so ensuring
upside remains even if the market develops slower than you expect is the only successful
way to invest.
On valuation alone Aphria provides that margin of safety, trading at a 60% discount to the
group average and at less than half the multiple of the most expensive names like Canopy
Growth, Tilray and Aurora Cannabis, even though Aphria will be the first-or second-largest
licensed producer globally by 2019.
Additionally, Aphria is trading at a multiple below that of Spirits, Tobacco, and Beer
companies. By definition the growth upside is significantly higher in cannabis than other
recreational consumption categories.
ESTIMATED EV/EBITDA MULTIPLE IN 2020

50x (EV/EBITDA)
45x
40x
35x
30x
25x
20x
15x
10x
5x
0x
Marijuana Companies Comparable Industry Averages
Average
Source: Grizzle Estimates

APHRIA IS ONE OF THE HIGHEST
QUALITY TAKEOVER TARGETS IN
CANNABIS
Consumer products companies such as Altria, Coca-Cola, and Diageo are currently circling
cannabis companies looking for the right entrance point into this rapid growth industry. In
our view a consumer goods company values the four attributes listed below when evaluating
a potential takeover candidate.
A DIVERSIFIED GROUP OF ASSETS ALL OVER THE WORLD

AND CAPACITY THAT CAN SCALE
Consumer products companies need global cannabis assets that can scale to meet fast-growing
consumer demand wherever it appears. Global cultivation, distribution, and retail assets are key.
With a presence in countries like Colombia, Germany and Denmark, who are seeing the most
rapid regulatory change, Aphria’s global footprint is as solid as it comes in cannabis. Early on
management identified countries seeing the most political change and Aphria has operations
that service 90% of these countries.
A MANAGEMENT TEAM THAT CAN EXECUTE WITH A

HISTORY OF BUSINESS SUCCESS
Outside management is looking for experts in cannabis who can help them scale to meet expected
global demand. They also need a high-quality product supported by strong quality assurance.
Aphria has shown they can build greenhouses largely on time and on budget while also
keeping the focus on the quality of the product to gain consumer trust. Management has
not had a crop loss and have chosen to destroy plants past the optimal harvest period
instead of compromise product quality.
A GOOD RETURN ON THE MONEY THEY PUT IN

Large corporations are held to a very high standard by shareholders and must show a
return on every dollar they spend. For that reason the cost structure and cashflow potential
at full capacity are all important.
Aphria is a category leader operationally with the lowest growing costs in the industry
and the highest gross margin per gram even before reaching full-scale. A low growing cost
makes above average profitability very likely.
VALUE
Once companies have identified profitable and diversified assets plus a top-ranked
management team, they are looking to get good value for their money.
For its size Aphria represents the best value in cannabis, trading at a 60% discount to
similar-sized peers Aurora Cannabis and Canopy Growth.

LOWEST GROWING COSTS ENSURE
INDUSTRY LEADING PERFORMANCE
Aphria holds the distinction as the lowest cost licensed producer in Canada and has held
this position for years. All-in production costs are $1.71 per gram, compared to an industry
average of $4.00 per gram. Aphria is in a league of its own when it comes to operations and
cost control.
Management maintains its cost lead through operational excellence, a measured approach
to hiring and a focus on keeping input costs low. The company is continually looking for
ways to grow and process cannabis faster and save money on input costs such as fertilizer,
lighting, and heating.
ALL-IN PRODUCTION COSTS PER GRAM
$6
$5
$4
$3
$2
$1
$0
$/gram Average
Source: SEDAR
Aphria management has decades of greenhouse growing and engineering experience,

making them one of the only companies building greenhouses on time and on budget.
While other licensed producers are running into operational issues that temporarily
decrease growing capacity or licensing problems that have caused complete crop loss in
some cases, Aphria has been expanding capacity smoothly to adequately supply Canada’s
growing recreational sales post-legalization.

WHY A LOW-COST STRUCTURE IS A
KEY PATH TO ATTRACTIVE RETURNS
IN COMMODITIES
Cannabis flower is an agricultural commodity and therefore the economics are governed
by forces of market supply and demand. In periods where there is limited supply (or excess
demand) the market will experience prices above the long-term average and conversely
during periods of excess supply (or weak demand) the market will experience prices below
the long-term average.
Commodity producers are therefore well positioned from a profitability perspective if they
are one of the lowest cost producers.
COMMODITY PRICING EXAMPLE: IRON ORE
IRON ORE PRICE VS CASH COSTS
8,000
US$/t (Log Scale)
4,000
2,000
1,000
500
Jan-85
Nov-85
Sep-86
Jul-87
May-88
Mar-89
Jan-90
Nov-90
Sep-91
Jul-92
May-93
Mar-94
Jan-95
Nov-95
Sep-96
Jul-97
May-98
Mar-99
Jan-00
Nov-00
Sep-01
Jul-02
May-03
Mar-04
Jan-05
Nov-05
Sep-06
Jul-07
May-08
Mar-09
Jan-10
Nov-10
Sep-11
Jul-12
May-13
Mar-14
Jan-15
Nov-15
Sep-16
Jul-17
C(25) C(50) C(75) C(90) Price
Source: AME Group, Bloomberg, Bernstein analysis
To explain why a company’s place on the cost curve matters let’s use the iron ore market as
an example.
The price of iron ore, the blue line, most often tracks the cost of production for the 10% of
companies with the highest mining costs. This is because the market needs to keep the
high cost companies in business, so they can supply the last bit of iron ore demanded by
the market.
However sometimes supply exceeds demand and when this happens the price of iron ore
falls below the price needed to keep all producers in business. The high cost miners go
bankrupt, taking their supply out of the market until the point where lower supply again
meets demand and the price stabilizes back at the high end of the cost curve.

PRODUCERS WHO HAVE THE LOWEST PRODUCTION COST RARELY RUN INTO
FINANCIAL PROBLEMS BECAUSE THE PRICE OF IRON ORE ALWAYS STAYS
WELL ABOVE THEIR PRODUCTION COSTS.
LOW-COST PRODUCERS GENERATE CASHFLOW IN GOOD MARKETS AND BAD

AND ARE EVEN ABLE TO CAPITALIZE ON OTHER COMPANIES’ PROBLEMS AND
BUY ASSETS ON THE CHEAP WHEN PRICES ARE FALLING.
APHRIA IS THE BHP BILLITON OF CANNABIS
To fully understand why being the low cost producer of cannabis gives Aphria a competitive
advantage, we need to look no further than BHP Billiton, the mining company against
which all other commodity producers are judged.
For some background, BHP is the world’s largest miner of bulk commodities such as Iron
Ore, Copper, and Coal and has consistently been the most profitable for over a decade.
BHP manages to remain profitable year in and year out even when the selling price of the
products it mines are down by double digits. BHP does this by making sure it can mine any
commodity for cheaper than anyone else.
BY BEING THE LOW-COST PROVIDER OF A CERTAIN GOOD YOU ENSURE THAT

YOU WILL BE THE LAST COMPANY STANDING EVEN IF PRICES FALL AND
DEMAND CONTRACTS.
When iron ore prices fell 70% from 2011-2014, high cost miners went out of business as
they were now selling iron ore for less than it cost them to take it out of the ground.
BHP on the other hand continued to generate excess cash and was able to buy high-quality
mines from struggling competitors and take on additional clients so cashflow would
continue to grow, especially once the market rebalanced and pricing improved.

PRICE OF IRON ORE VS BHP’S FREE CASH FLOW
$160 (USD/tonne) 14 US$ billion
$140 12
$120
10
$100
8
$80
6
$60
4
$40
2
$20
$0 0
13
13
14
14
15
15
16
16
17
17
18
14
15
16
17
18
n-
c-
20
n-
c-
n-
c-
20
n-
c-
20
n-
c-
n-
20
20
De
De
De
De
De
Ju
Ju
Ju
Ju
Ju
Ju
FY
FY
FY
FY
FY
Source: Market Index.com and BHP Billiton Annual Report
BRINGING AUTOMATION AND TECHNOLOGY TO GROWING

CANNABIS WILL KEEP APHRIA IN THE LEAD ON COSTS
Aphria has a cost advantage because of superior management and operational excellence,
but in the coming months a focus on integrating robotics and cutting-edge technology will
keep them in the lead on costs.
Robot Planting Arms | Source: youTube.com
One example of the automation at work is Aphria’s integration of robot arms into the
transplanting process. Historically, an experienced human grower can plant 400 cuttings
per hour. Aphria has introduced planting robots that can handle 2,200 cuttings an hour and
these robots work nonstop with no breaks over an eight-hour workday.
With these robots, Aphria can support their entire greenhouse facilities with only 5
employees as opposed to 22, saving significant money on labour costs and speeding up
the planting process.

Computer Controlled Growing Trays | Source: youTube.com
Aphria has installed computer-controlled trays to move plants around the greenhouses.
When a tray of plants is ready for harvest a computer moves it along a track system directly
to the point of harvest where the flowers are separated from the leaves.
The remaining trays are then reshuffled automatically, and a new tray is inserted to keep
the greenhouse full. This computer system allows harvests to happen on a massive scale
with no confusion, maximizing efficiency.
Automated Packaging | SOURCE: Busch-Machinery.com
Aphria is also introducing pharmaceutical-grade packaging and filling equipment that will
dramatically speed up the number of flower and extract containers that can be filled each day.
Historically, eight human workers have been able to label and fill 900 containers over an eight-
hour workday. With the robotics Aphria is introducing into their facilities, each machine can
pack 600 containers an hour, or 5x more in a workday than eight employees.

THE APHRIA MANAGEMENT TEAM
IS THE BEST IN THE BUSINESS
WHY THE MANAGEMENT TEAM IS SO IMPORTANT?
In emerging growth industries management quality is one of the key determinants of long-
term financial success. In these high-growth industries investors are often caught up in the
euphoria of big promises and are less diligent about vetting the management teams of
the companies they invest in. A top-tier management team with a proven track record of
success in our view is not just a nice to have, it is a key. Based on his record of past business
success, investors cannot do better than Vic Neufeld when choosing a cannabis CEO. He is
the only CEO of a large cannabis company with decades of relevant industry experience
and demonstrated business success. The top managers at other licensed growers are either
financial engineers with little operational experience (Cronos, Tilray) or executives with
limited relevant operational experience.
VIC NEUFELD
President & Chief Executive Officer
Mr. Neufeld has the longest, most successful business career
among any of the cannabis CEOs. He is extremely well-rounded
with direct experience in agriculture, finance, pharmaceuticals,
vitamins, and international distribution.
Mr. Neufeld’s father was a farmer, so he grew up with hands-on

experience in the agriculture industry.
Mr. Neufeld also ran Jamieson Laboratories, a provider of vitamins and health supplements,
for more than two decades, which provided him with top-shelf experience in operations,
international logistics, and navigating health regulations. He grew sales from $20 million in
1993 to $250 million by the time he left the company in 2014. His appointment to the board
of three other large companies in Canada validates his strong business reputation.
Jamieson exports products to 28 countries outside of Canada so Neufeld has significant

experience dealing with international partners and setting up supply chains.

DEALMAKING AND FINANCIAL REPORTING EXPERTISE
CARL MERTON
Chief Financial Officer
Mr. Merton has a long history as an accountant, with 12 years
spent with Ernst & Young LLP and KPMG LLP, two of the largest
global accounting firms.
Mr. Merton is one of only 1,800 chartered business valuators (CBV

designation) in the world. The designation shows that he has a high
level of skill when it comes to determining the value of a business,
making strategic decisions and identifying business opportunities, among other skills.
Aphria has been one of the most prudent acquirers in the industry, which means they have
not been overpaying for assets like many peers and Mr. Merton’s valuation experience likely
played a role.
Prior to working for Aphria, Mr. Merton was the CFO of Reko International Group, a $21 million
market cap supplier of factory automation equipment. While Merton was CFO from 2007 to
2015, the stock price of the company increased by 300%, demonstrating his solid decision
making regarding mergers and acquisitions and zero problems with regulators when it came
to financial disclosures or timely filing of financial results.
SALES, BRANDING, AND MARKETING EXPERT
JACOB RIPSHTEIN
CHIEF COMMERCIAL OFFICER
Aphria’s hiring of Mr. Ripshtein was a solid choice as he is
perhaps the most qualified sales focused employee in the entire
cannabis space. It speaks volumes about the quality of Aphria’s
management team and assets that he chose to leave his role as
CFO of Diageo North America for what was essentially a cannabis
startup at the time.
Mr. Ripshtein oversees all commercial activities at Aphria. This involves establishing new
brands as well as all sales and marketing initiatives.
He has deep commercial experience in areas such as product pricing, sales incentives, trade
terms, and business strategy.

GREENHOUSE CULTIVATION AND CONSTRUCTION EXPERTISE
Mr. Cacciavillani and Mr. Cervini come from a long line of greenhouse
operators in Southern Ontario. They are both leaders in the greenhouse
industry demonstrated by their founding of the Ontario Greenhouse
Marketing Association and Ontario Greenhouse Alliance, a group of
500 greenhouse operators in Ontario.
They both have deep experience in the construction and operation

of semi-outdoor greenhouses, the industry’s preferred way to
grow cannabis due to its low costs and quality control flexibility.
Mr. Cacciavillani is extremely hands on and is overseeing the

construction and day-to-day operations of the two lowest cost
greenhouses in Canada.
Mr. Cervini is an expert in hydroponic growing techniques and

along with his family, built the greenhouse cultivator Lakeside
Produce into one of the largest distributors of produce in North
America. Lakeside has cultivation and processing assets in Canada, Texas, Michigan, and
North Carolina.
Mr. Cervini has extensive experience in produce packaging, processing, and just in time
logistics, which will be a benefit to Aphria as it works to supply millions of Canadians now
that the recreational market is open for business.
PRODUCT QUALITY AND SAFETY IS IN APHRIA’S DNA

A focus on product quality, potency, and safety has travelled with the management
team over from their time at Jamieson Vitamins. Jamieson helped found the NNHPD,
the regulating authority for natural health products in Canada and is still voted as one of
Canada’s most trusted vitamin brands.
CEO Vic Neufeld brought his head of quality assurance, Gary

Leong, over from Jamieson Vitamins to make sure product quality
and manufacturing protocols are up to the highest standards in
the industry.
One example of how Aphria goes above and beyond when it

comes to food safety, is their decision to irradiate products before
packaging even though it is not required by regulations.
Irradiation is used to reduce the risk of foodborne illness and extends the shelf life of a product.
The process is used extensively on food products in North America and years of testing by the
CDC, FDA, WHO, and USDA show irradiation is safe and effective.

Because of management’s long history dealing with consumer health products that require
stringent quality control they are well equipped to produce high quality cannabis.
THE COMPANY HAS ROBUST PROCESSES IN PLACE TO PREVENT DISEASED

PRODUCT FROM GOING OUT TO CONSUMERS WHICH DECREASES AN
INVESTOR’S RISK OF A COSTLY RECALL THAT COULD HURT APHRIA’S BRAND.
Quality control is often overlooked by investors in favour of more flashy data like production
growth, M&A, or branding, but quality control is what keeps costs down and avoids
potentially bankrupting product recalls.
ASSET REVIEW
Cultivation Distribution Retail
Source: Aphria
Throughout 2018 Aphria has been establishing a global footprint of cultivation, distribution,
retail, and research assets. The assets are in all the regions where cannabis legalization is
moving ahead at the most rapid pace.
The company is significantly diversified across the globe and can now choose to deploy
additional capital based on where cannabis demand is accelerating the most quickly.
A full list of assets and their capabilities are below to help investors judge the potential
of Aphria.

CULTIVATION (GROWING CANNABIS)
CANADA
APHRIA 1
Sq. Ft: 300,000 (current), 1,000,000 (March 2019)
Annual Output (kg): 30,000 (current), 100,000 (March 2019)
Construction Cost ($/gram): $1.65/gram
Aphria 1 is the company’s flagship greenhouse, located in Leamington, Ontario, about four
hours west of Toronto and only an hour from Detroit, Michigan.
Aphria 1 is 90% of the company’s output and is the testing ground for the cutting-edge
automation they are going to employ in all future greenhouses.
Construction costs to bring the facility up to full capacity are $1.65 per gram, 10%-20%
cheaper than competitors are building their greenhouses for.
APHRIA DIAMOND
Sq. Ft: 1,300,000 (March 2019)
Annual Output (kg): 140,000 (March 2019)
Construction Cost ($/gram): $0.88
Aphria Diamond is just down the road from Aphria 1 and is a joint venture between Aphria
and Double Diamond farms, a large vegetable grower. Aphria owns 51% of the JV and is
entitled to their share of production plus the remaining 49% at wholesale rates.
Aphria will be able to keep the additional margin they generate from processing 100% of
the raw flower into value added products or from selling through retail channels.
The facility will be 1.3mm sq. ft at full capacity, but there is room for expansion with the
Double Diamond JV owning over 4mm sq. ft of land.
Construction costs of $0.88 per gram are best in class and will be 20% below similar size
greenhouses from peers.
BROKEN COAST
Sq. Ft: 45,000 (March 2018), 65,000 (January 2019)
Annual Output (kg): 4,500 (April 2018), 6,500 (January 2019)
Aphria purchased Broken Coast in January 2018 to fill in the premium segment of their product
line. Broken Coast will remain a smaller artisanal grower of strains priced at a premium to the
market average for now, but production can be scaled up quickly as the market demands.

UNITED STATES
Sq. Ft: 16,000 (March 2018), 225,000 (January 2019)
Annual Output (kg): 1,600 (April 2018), 14,600 (March 2019)
Liberty Health Sciences is a Florida, Massachussetts, and Ohio-based medical grower and
retailer of cannabis. Aphria sold their shares in Liberty due to Toronto Stock Exchange
requirements, but retains an option to buy back a majority of the shares at some point in
the next 5 years. Aphria owned 30% of Liberty before the divestment.
AUSTRALIA
Sq. Ft: 45,000 (Mid 2019)
Annual Output (kg): 3,000 (Mid 2019)
Aphria owns 25% of the largest publicly traded cannabis producer in Australia, Althea Pty.
Althea is currently constructing greenhouses on 10 acres of land in Skye, Victoria with plans
to produce 3,000 kg a year of medical cannabis starting in 2019.
COLOMBIA
Sq. Ft: 500,000 (January 2019)
Annual Output (kg): 30,000 (January 2019), 50,000 (June 2020)
Aphria is in the process of building a greenhouse in Colombia that will provide the company
with an ultra-low cost source of supply that can be sold domestically or exported to the
market with the highest selling price.
DENMARK
Sq. Ft: 30,000 (2019)
Annual Output (kg): 3,000 (2019)
Aphria owns 15% of a joint venture with Schroll Flowers, the largest grower and distributor
of hydrangeas in Europe. Aphria has an option to increase their stake to 50%.
The partnership will own a retrofitted greenhouse and EU-GMP certified processing facility
and will act as Aphria’s growing and processing hub in Europe for now.

JAMAICA
Sq. Ft: 30,000
Annual Output (kg): 3,000
Aphria owns 49% of Marigold Projects, a licensed producer and retailer in Jamaica. The
company is entitled to 95% of net income due to a separate royalty agreement.
AFRICA
Sq. Ft: 120,000
Aphria owns 50% of Cannivest Africa, which owns 30% of Verve Dynamics, a licensed
cultivator of cannabis in the Kingdom of Lesotho. Aphria has a supply agreement with
Verve where Verve will supply up to 3,000 kg of low-cost CBD and THC extract to Aphria for
distribution into Africa or Europe.
GERMANY
Aphria is currently working its way through the tender process in Germany to be selected
as one of the first domestic growers. Germany will allow each winner to grow 1,040 kg a
year maximum for the next four years. A decision on the results of the tender will be made
in 2019.
PROCESSING (CREATING OILS AND

VALUE ADDED PRODUCTS)
CENTRE OF EXCELLENCE
Annual Output (kg): 200,000 (April 2019)
Aphria is building a centre of excellence in Leamington, Ontario that will allow them to
process dry cannabis material into concentrated oils and individual plant compounds.
These extracts can then be infused into all types of high-margin products.
Edibles, infused beverages, and topical creams are three examples of retail products that
will be released in 2019 as permitted by regulations.

The company has some additional capacity already in place that will be consolidated into
the centre of excellence and additional capacity can be scaled up quickly to handle growth
in demand for cannabis infusions.
DISTRIBUTION (MOVING CANNABIS

TO MARKET)
Aphria has the benefit of Vic Neufeld’s years of experience when it comes to the distribution
of health and wellness products. Mr. Neufeld handled domestic and international
distribution for 21 years for a company with $250 million in annual sales. His experience is
evident in the distribution infrastructure already in place for Aphria.
CANADA
GREAT NORTH DISTRIBUTORS
Aphria was the first licensed producer to realize that to effectively place your product on
retail store shelves requires a countrywide salesforce. Private retailers will sell to 70% of the
population, making them the most important sales channel.
Great North is a subsidiary of Southern Glazers, the largest wine and spirits distributor
in North America. Great North already has sales teams spread all over the country to
service government and private cannabis retail post-legalization. Great North has existing
relationships with all the liquor control boards across Canada, giving Aphria an advantage
over peers as they engage with the provinces to sign initial and ongoing supply contracts.
Aphria’s decision to hire a dedicated sales team on a long-term sales contract decreases
commission costs compared to paying recurring sales commissions and may give Aphria
a leg up with shelf placement, which will be very important to build brand recognition in
retail stores.
ARA – AVANTI RX ANALYTICS

Aphria acquired Avanti with the acquisition of Nuveera in early 2018 and will use the
company’s distribution infrastructure as the main staging point for cannabis exports. Avanti
is currently applying for the EU-GMP certification which will allow it to extract, process, test
package, and ship cannabis to European markets.

ARGENTINA
ABP S.A. is a pharmaceutical import and distribution company owned by Aphria that
generated $11 million of revenue last year and has a well-established distribution network
already in place. The company owns a distribution warehouse, a retail pharmacy and has
supply agreements with 20 health insurance companies. ABP also distributes medicine to
an extensive network of pharmacies, government clinics, and hospitals.
ABP’s distribution network will allow Aphria to efficiently scale up sales in Argentina once
the government legalizes medical and recreational cannabis use.
BRAZIL
Aphria is in the process of buying 50.1% of a Brazilian entity that will be licensed to import
medical cannabis. If the deal is completed they will also have a right of first refusal to acquire
up to another 39% of the company for a total ownership of 89%. This entity will be Aphria’s
vehicle to begin selling and eventually growing cannabis in Brazil.
GERMANY
Through Nuuvera Deutschland, Aphria owns 25.1% of Berlin-based Schoneberg hospital.
This partnership is part of Aphria’s strategy to educate patients and doctors about the
therapeutic benefits of cannabis. The company also plans to build pain treatment centres
to further educate and treat cannabis patients.
On the distribution front Aphria have a signed letter of intent to import and distribute 1,200kg
per year through CC Pharma GmbH, which has access to 13,000 pharmacies in Germany.
MALTA
Malta will serve as Aphria’s European distribution hub. The company plans to import dried
flower and extracts into Malta which will then be further processed and repackaged before
being sold on to the rest of Europe.
AUSTRALIA
Aphria currently distributes all exports to Australia through Althea Pty, the largest licensed
cannabis seller in Australia. Althea will continue to source all of its product from Aphria
until its own greenhouse can be built some time in 2019.

RETAIL (SELLING CANNABIS DIRECT
TO CONSUMERS)
After more than a year of market research Aphria has started to roll out consumer brands
for the recreational market. Aphria has six consumer brands already established in Canada
and plans to release additional brands so they eventually target every consumer segment
in the adult-use cannabis market.
BRANDS
APHRIA
The company’s namesake brand that is well known to
medical cannabis consumers across Canada. Aphria
products are known for being safe and providing good
value to medical consumers. Aphria already has a large
patient base familiar with the company’s brand which
should pay dividends as they look to new recreational
users for Aphria product lines.
SOLEI
The brand is described as a thoughtfully curated
assortment of strains, presented with uncomplicated
language. The marketing is focused on a younger
demographic. Solei products sold extremely well in
the first hours of legalization and were mostly sold out
across the provinces by the end of the first week.
FIRE & FLOWER

Aphria invested $10 million in the Alberta retailer Fire &
Flower. Fire & Flower has plans to open 58 retail stores
across Alberta, B.C., and Manitoba. Three stores are
already open in Alberta with seven more soon to open.
Two stores are currently operating in Saskatchewan.

RIFF
This millennial brand focuses on the local arts scene
and music events. RIFF is for cannabis users who like
to be a part of their local community and contribute to
the local culture. RIFF sponsored intimate art and music
events all summer as a way to introduce consumers to
the brand on a more personal level.
BROKEN COAST
An award-winning craft grower, cultivated in small
batches and in single strain growing rooms to preserve
the genetics. Broken Coast is known among cannabis
connoisseurs for their exacting growing techniques
and unique genetics. Early reviews have praised the
quality of the company’s legal cannabis.
GOOD SUPPLY
This is Aphria’s value brand for cost conscious consumers
who are everyday users. Aphria will likely plan to use
their low cost structure to price Good Supply at a very
attractive price compared to peers. Low costs give the
company room to outprice competitors.
GOODFIELDS
For both current and veteran users who want a quality
product from a trusted source. Goodfields seeks to
supply some unique strains while keeping prices low
to provide consumers with the highest value for their
money possible.

LIST OF SUBSIDIARIES AND OWNERSHIP PERCENTAGES
JURISDICTION OF OWNERSHIP
SUBSIDIARIES
INCORPORATION INTEREST
Pure Natures Wellness Inc.
Ontario, Canada 100%
(o/a Aphria)
Arizona,
Aphria (Arizona) Inc. 100%
United States
British Columbia,
Cannan Growers Inc. 100%
Canada
Nuuvera Inc. Ontario, Canada 100%
Nuuvera Holdings Ltd. Ontario, Canada 100%
ARA - Avanti Rx analytics Inc. Ontario, Canada 100%
Avalon Pharmaceuticals Inc. Ontario, Canada 100%
2589671 Ontario Inc. Ontario, Canada 100%
2589674 Ontario Inc. Ontario, Canada 100%
Nuuvera Israel Ltd. Tel Aviv, Israel 100%
Nuuvera Deutschland GmbH Hamburg, Germany 100%
FL-Group Genoa, Italy 100%
British Columbia,
Broken Coast Cannabis Ltd. 99.86%
Canada
Nuuvera Malta Ltd. Valletta, Malta 90%
ASG Pharma Ltd. Valletta, Malta 90%
1974568 Ontario Ltd. Ontario, Canada 51%
Canninvest Africa Ltd. South Africa 50%
Source: Aphria

PRODUCTION FORECAST
In the early days of the legal cannabis market, the cashflow potential of producers will
largely be decided by their annual output. In the future new revenue streams will appear,
but for the next 2-3 years revenue will correlate closely with greenhouse capacity.
We’ve analyzed short-term sales capacity through provincial supply agreements and long-
term capacity through funded construction plans and management guidance to estimate
production for Aphria over the next 2-4 years.
PROVINCIAL SUPPLY AGREEMENTS FORM A BASE LEVEL OF

DEMAND
In the early days of recreational cannabis sales, when demand is largely unknown, provincial
supply agreements are providing investors with a guidepost of revenue and cashflow
potential for the first 3-6 months of legalization.
Aphria has announced initial supply agreements with six provinces for a total of 23,000 kg
per year. Ontario, the largest province also announced a supply agreement with Aphria
but did not disclose volumes. Based on the size of the agreement signed with Quebec and
Ontario’s larger population, we think an agreement with Ontario is worth at least 20,000 kg
in the first year of legalization for a grand total of 43,250 kg contracted.
Source: Aphria

PROVINCIAL SUPPLY AGREEMENTS (KG PER YEAR)
YEARLY SUPPLY
PROVINCE
(KG)
Yukon 50
B.C. 5,000
Alberta 870
Manitoba 2,700
Quebec 12,000
New Brunswick 2,500
Ontario 20,400
Total 43,520
Source: Grizzle Estimates, Aphria
GLOBAL PRODUCTION OFFERS LONG-TERM UPSIDE

Aphria is positioning for growth outside of Canada by building greenhouse capacity in six
other countries with further expansion likely to be announced in time. The company is
positioning itself for a world where cannabis is grown in regions with low production costs
and sold as value-added products into developed regions with higher selling price, thereby
maximizing margins.
Most of the international growth by 2022 will come from low-cost greenhouses in
Colombia, Jamaica, Argentina, and Brazil. Greenhouses in Denmark and Germany will give
the company a local cultivation footprint in Europe, the most profitable cannabis market
in the world.
Low-cost production areas can serve as cheap raw material for processing into value added
products that will one day be sold in higher priced markets.
We believe Aphria’s focus on low costs will extend to international greenhouses allowing
them to maintain the distinction as the lowest cost licensed producer of cannabis even as
they expand away from Canada.
TOTAL CAPACITY COULD REACH 450,000 KG BY 2022

Aphria is constructing new greenhouse capacity at a rapid pace to be ready for legalization
in Canada and will be the first producer to reach nameplate domestic growing capacity of
255,000 kg a year in the first quarter of 2019. All capacity planned for Canada will be fully
operational in 2019 with further growth above 255,000 kg coming from South America,
Africa, Europe, and Asia.

PRODUCTION CAPACITY BY ASSET
450,000 (kg)
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
Aphria 1 Aphria Diamond Broken Coast Denmark
Colombia Lesotho Jamaica Brazil
Germany Australia Argentina
PRODUCTION FORECAST SUMMARY
ANNUAL SUMMARY
2019 2020 2021 2022
KG/YR
Aphria 1 82,500 110,000 110,000 110,000
Aphria Diamond 92,500 140,000 140,000 140,000
Broken Coast 9,125 12,750 15,000 15,000
Denmark 3,000 6,000 20,000 20,000
Germany 0 260 260 260
Colombia 15,000 30,000 50,000 80,000
Lesotho 5,250 20,750 24,000 24,000
Jamaica 2,855 5,000 10,000 10,000
Brazil 0 2,000 5,000 15,000
Australia 375 3,750 8,000 20,000
Argentina 0 2,375 6,250 10,000
Gross Production 210,605 332,885 388,510 444,260
Net Production 155,582 236,267 269,793 313,578

REVENUE FORECAST
Estimating revenue is more art than science with the legal market having just opened,
due to a lack of data. The industry has no way to gauge how quickly consumers will stop
buying from the black market and transition to legal purchases. However, provincial
supply agreements give us a signpost of revenue potential in the first 3-6 months of
recreational sales.
PROVINCIAL SUPPLY AGREEMENTS GENERATE $240

MILLION ALONE
Using Alberta’s wholesale pricing guide, we estimate Aphria will make $5.50 per gram on
average selling directly to the government in the first few quarters of legalization.
APHRIA’S FIRM SUPPLY AGREEMENTS OF 43,250 KG WILL BE GENERATING AT

MINIMUM $60 MILLION A QUARTER OR ROUGHLY $240 MILLION OF REVENUE
IN THE FIRST YEAR WITH NON-CONTRACT SALES AND INTERNATIONAL
EXPORTS MAKING UP THE REST. REVENUE WILL BE UP SIGNIFICANTLY FROM
$37 MILLION GENERATED IN THE LAST TWELVE MONTHS.
BREAKDOWN OF AVERAGE WHOLESALE PRICE OF

CANNABIS BY PRODUCT FORMAT
$0.42
$1.08
AVERAGE WHOLESALE PRICE PER GRAM
DRIED FLOWER $8.35

$1.00 MILLED FLOWER $4.96
PRE-ROLL $9.11
OIL $10.97
$6.40 CAPSULE $9.65
SEED $12.04
Wholesale Price = Product Price + Federal Excise Duty + Provincial Duty + GST
AVERAGE WHOLESALE PRICE PER GRAM: $8.90
Product Price Federal Excise Duty
Provincial Duty GST
https://twitter.com/_deepakanand/status/1041669262887157760

GLOBAL REVENUE FORECAST
$3,500 (CAD million)
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2019 2020 2021 2022
Revenue $1,283 $1,958 $2,520 $3,046

EBITDA $305 $504 $682 $843
Using Aphria’s greenhouse footprint, construction schedule, and management guidance

we estimate the company will generate over $3 billion of revenue by 2022. Revenue is
primarily driven by Aphria 1 and Aphria Diamond in Canada with additional earnings power
coming from South America and Europe in later years as those cannabis markets develop.
Estimates assume each country remains its own standalone market, but if cannabis
becomes a global market with low-cost supply flowing to high-cost demand, there would
be meaningful upside to our cashflow estimates.
REVENUE FORECAST BY ASSET

$800 (CAD million)
$700
$600
$500
$400
$300
$200
$100
$0
Aphria 1 Aphria Diamond Broken Coast Denmark

Germany Colombia Lesotho Jamaica
Brazil Argentina Australia

REVENUE SUMMARY
ANNUAL REVENUE
2019 2020 2021 2022
(CAD MILLION)
Aphria 1 547 745 921 1,077
Aphria Diamond 611 948 1,172 1,370
Broken Coast 50 77 98 104
Denmark 7 12 39 36
Germany 0 3 3 2
Colombia 36 68 107 160
Lesotho 8 29 32 30
Jamaica 7 11 21 20
Brazil 0 10 25 69
Australia 0 17 43 65
Argentina 17 36 60 112
Total Revenue 1,283 1,958 2,520 3,046
POSITIVE SALES MIX DRIVES HIGHER PER UNIT REVENUE

Looking at the cannabis products consumers demand most in legal US states, cannabis
flower now makes up less than 50% of sales and far less than 50% of the product mix
offered in licensed dispensaries.
TOTAL MEDMEN LISTINGS
10K
EDIBLES & TOPICALS
8K
COUNT OF LISTINGS
6K
EXTRACT
4K
2K FLOWER
0K
Source: CannStandard.ca

Consumers are making it clear they value healthier alternatives such as vaping and edibles.
We think consumer demand will transition away from flower even quicker than we’ve
observed in the US because of the explosion in non-smokable products entering the
market. A wealth of funding is leading to a spike in R&D budgets across the US and Canada
and a flood of infused beverages and edible products will hit the market in 2019 when the
Canadian government legalizes additional products.
For Aphria, the transition away from dried flower sales will enable the company to
differentiate themselves from peers and grow margins. Cannabis oil and edibles
command much higher profit margins than selling the raw flower and give each
company much more room to experiment and set themselves apart with unique
products in a crowded marketplace.
APHRIA SALES MIX FORECAST

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Flower Edibles Concentrates

APHRIA RETAIL/WHOLESALE SPLIT FORECAST
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Wholesale Retail
REVENUE PER DRIED GRAM ASSUMPTIONS (CAD)

Colombia
CDN Wholesale Flower
Jamaica
Lesotho
Broken Coast Wholesale
CDN Wholesale Concentrate
Brazil
Argentina
CDN Retail Flower
Australia
Germany
Broken Coast Retail
CDN Retail Concentrate
CDN Wholesale Edibles
Denmark
CDN Retail Edible
$0 $5 $10 $15 $20 $25 $30 $35
Source: Grizzle Estimates, Weedindex.io
APHRIA’S PRODUCT ECONOMICS

To help investors understand selling economics we have provided a visual breakdown
of Aphria’s profitability on a wholesale and retail level. These estimates drive our
valuation model.

Data was compiled from preliminary government data on wholesale prices and taxes, plus
real-time product pricing from company websites and third-party pricing sources.
The analysis is done at the corporate level and is the EBITDA remaining after paying all
corporate costs in the case of wholesale, plus costs to run a store in the case of retail.
The bottom line is that selling your product through retail channels leads to lower corporate
level margins but higher absolute profits. Aphria can generate ~$3.60 per gram of cashflow
by selling cannabis oil through a retail channel, versus ~$2.60 per gram if the oils are sold
directly to the government distributor.
CORPORATE PROFIT BY SALES CHANNEL AND PRODUCT
FLOWER WHOLESALE MODEL FLOWER RETAIL MODEL

($/GRAM) ($/GRAM)
Revenue $4.50 Revenue $12.00
Cost of Goods $1.71 Cost of Goods $3.61
Gross Profit $2.79 Gross Profit $8.39
Margin % 62% Margin % 70%
EBITDA $1.13 EBITDA $2.03
EXTRACT WHOLESALE MODEL EXTRACT RETAIL MODEL

($/GRAM) ($/GRAM)
EDIBLES WHOLESALE MODEL EDIBLES RETAIL MODEL

($/GRAM) ($/GRAM)

APHRIA IS FUNDAMENTALLY WORTH
$40/SH TODAY WITH UPSIDE TO $200/SH
LONGER TERM
We think a hard target price that doesn’t account for different time periods and the rapid
evolution of the cannabis market provides little helpful information for investors. To get
around the lack of flexibility a target price provides, we think it makes more sense to look at
the company over the medium-term and the longer term.
In the medium-term we ran scenario analyses to come up with a base case stock value. We
also looked at what the longer term potential of Aphria will be as the company disrupts
established consumer markets.
A discounted cash flow analysis puts the stock at $40 per share.
DISCOUNTED CASHFLOW METHOD (DCF)
CAD MILLION 2019 2020 2021 2022 ASSUMPTIONS
Revenue $1,283 $1,958 $2,520 $3,046 WACC 8.0%
EBITDA Margin 24% 26% 27% 28% Risk Free Rate 3.6%
Terminal
EBITDA $305 $504 $682 $843 3.0%
Growth Rate
DD&A $15 $24 $30 $37
Interest
$2 $2 $2 $2
Expense
Pre-tax Income $287 $478 $649 $805
Taxes $76 $127 $172 $213 TERMINAL VALUE DCF/Sh
Net Income $211 $351 $477 $591 $13,844 $59
Present Value $188 $284 $351 $395 $9,248 $40
FUTURE MULTIPLE APPROACH

To sanity check our DCF we applied an 18x multiple to the EBITDA generated in 2022. We
chose 18x because it is higher than wine and spirit peers at 15x due to the far superior growth
the cannabis industry will experience over the next decade.
Taking the present value of this method gives us a $40 stock price as well.

CAD MILLION
2022 EBITDA $843
EBITDA Multiple 18x
2022 Enterprise Value $15,182
PRESENT VALUE $10,148
"+" Cash 432
"-" Debt 39
PV Market Cap $10,541
Fully Diluted Shares 261
PRESENT VALUE $40
APHRIA POTENTIALLY A $200 STOCK

The problem with financial forecast in the cannabis industry is that they are far too short-
term. Analysts point to how new the industry is as an excuse for not attempting to at least
quantify the longer term size of the cannabis market.
We think there is value in putting some numbers around the future potential even if the
market evolves differently than we expect. Then at least investors can make more informed
decisions about the downside and the upside to cannabis stocks.
We analyzed many of the major markets that cannabis could reasonably disrupt over the
next 17 years and made assumptions about the market share Aphria could capture.
Examples of verticals where cannabis is already taking market share are prescription drugs,
supplements, pet medication,global beauty, soft drinks, and alcoholic beverages.
If Aphria can take even modest market share from these industries (we esitmate 1.1%), the
stock is easily worth $200 a share.

POTENTIAL VALUE OF CANNABIS MARKETS IN 2035
$183B $21B $104B

2.0% 1.0% 4.0%
$1,516B $2,612B = $200/sh

$204B $658B
0.5% 5.0% 1.0% 1.5%
Global Beauty Global Pain Therapy Global Recreational Cannabis

Global Supplements Pet Medication NAM NAM Soft Drinks
Global Alcoholic Aphria’s Estimated
Beverage Market Share
Source: Grizzle Estimates, QuintilesIMS Holding, Orbis Research, Animal Health Institute
APHRIA’S ESTIMATED MARKET SHARE OF FUTURE

CANNABIS MARKETS
SIZE REVENUE EV
MARKETS MKT SHARE PV/SHARE
(CAD BILLION) (CAD BILLION) (CAD BILLION)
Global Beauty 1,516 0.5% 7.1 26.7
Global Pain Therapy 104 4.0% 4.1 15.6
Global Recreational
204 5.0% 10.2 38.2
Cannabis
Global Supplements 658 1.0% 6.6 24.7
Pet Medication NAM 21 1.0% 0.2 0.8
NAM Soft Drinks 183 2.0% 3.7 13.7
Global Alcoholic
2,612 1.5% 39.6 148.6
Beverage
TOTAL 6,258 1.1% 72 268 $200

Source: Grizzle Estimates, QuintilesIMS Holding, Orbis Research, Animal Health Institute
GLOBAL BEAUTY
The beauty industry is already being disrupted with the emergence of cannabis-infused
topicals, both active and inactive. Cannabis is a whole new ingredient with unknown
potential and the beauty industry is already racing to incorporating cannabis into more
and more products.
The beauty industry is growing quickly and according to a forecast by Orbis Research,
beauty spending will grow 7% a year from 2018-2023, reaching $805 billion in sales.
Looking out to 2035 and assuming slowing growth the global beauty industry will be a $1.5
trillion dollar business and it is reasonable to assume a cannabis company could take half a
% of the market compared to over 20% for leading brands today.

GLOBAL PAIN MEDICINE
North America is going through a pain medicine crisis, also known as the opioid crisis.
Cannabis has been shown to work well as a pain reliever in clinical studies and has an
almost nonexistent overdose risk compared to opioids which killed 40,000 Americans in
2017 according to the CDC.
Cannabis has also shown promise in treating conditions such as epilepsy, Parkinson’s Disease, and
depression, with many more uses to be discovered due to future advances in cannabis research.
The global pain therapy market will grow to $104 billion by 2035 according to Market
Research Engine and Technavio. The largest pharma company, Novartis A.G., owns 4.5%
of the global drug market so we expect Aphria could capture a similar market share in the
pain market as the company expands further into clinical research and pharmaceuticals.
GLOBAL RECREATIONAL CANNABIS

We think the market for cannabis flower, oils, and edibles will reach at least $200 billion
by 2035. We assume 6% of the global population uses cannabis annually by 2035 and the
average sticker price is $5 per gram. Usage numbers and sticker price could exceed our
estimates, but we think $200 billion is a good starting point for investors.
Aphria currently controls 20% of the cannabis market in Canada and we expect a global
market share of 5% longer term is possible. Five global cigarette brands control the
adjacent cigarette market and we believe cannabis will look similar in time.
GLOBAL SUPPLEMENTS
The global supplements market is estimated to grow 9.6% a year to reach $278 billion by
2024, according to Grandview Research. Grizzle estimates the market will hit $658 billion by
2035 if slightly slower growth continues.
Vic Neufeld, CEO of Aphria, was previously the CEO of the largest vitamin and supplements
company in Canada. He knows how the supplements market operates and will be able to
leverage research on the efficacy of CBD as a supplement. We think Aphria could achieve a
1% market share through creation of assorted cannabinoid supplements.
PET MEDICINE
Demand for pet medicine is growing rapidly in North America and according to the Animal
Health Institute and Packaged Facts, drug spending was $9 billion in 2016. The market
should grow to $21 billion by 2035 and we expect Aphria to control 1% of the market for
cannabis products that treat chronic pain, anxiety, and other pet ailments.
SOFT DRINKS IN NORTH AMERICA

We are already seeing major soft drink companies circling the cannabis industry looking for
a way in. These companies are looking to incorporate CBD, an active cannabis ingredient
into sports drinks and many other beverage categories.

For the soft drink market, we only looked at North America as international data is not
reliable enough. The North American soft drink market is expected to grow to $129 billion
by 2025 according to Grandview Research. As new categories of drinks keep sales growing
we expect revenue will hit $180 billion by 2035.
We expect Aphria will eventually partner with a major consumer beverage company and
this partnership will allow the company to capture at least 1% of the global soft drink
market.
GLOBAL ALCOHOLIC BEVERAGE

According to Allied Market Research, the Alcoholic Beverage Industry is already a massive
market, worth $1.4 trillion in 2017. With a 1-2% growth rate, the industry will be worth $2.6
trillion by 2035.
Aphria is deep in product development on infused beverage products that use the
psychoactive ingredient in cannabis. These products could easily replace a beer or glass of
wine for consumers who want a buzz.
Cannabis infused beverages have enormous potential and we think Aphria could
reasonably own 1.5% of the market. Beverage giants such as Coke and Diageo have market
shares between 18%-25%.
CONCLUSION
The cannabis industry presents investors with some of the best long-term structural growth
opportunities. Yet, along with the upside comes sizable risk. Management teams have not
yet been tested, companies both good and bad are being funded, and the true economics
of growing cannabis are not yet clear.
The way to mitigate these risks is to buy, as all great investors do, with a margin of safety.
Buying licensed producers trading at reasonable or deeply discounted multiples who grow
cannabis cheaper than peers and are run by an ethical and seasoned management team, is
the way to maximize your chances of making money.
Based on Grizzle’s significant experience analyzing both private and public companies in
commodity sectors we believe investors would be wise to make Aphria a core component
in a diversified cannabis portfolio.

DISCLAIMER
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for purchases or sale of stocks, services or products. Nothing on our site should be construed as an offer or solicitation to buy or sell products or
securities. All investment involves risk and possible loss of investment. While it is Grizzle’s goal to feature information on companies that may have the
potential for long-term appreciation, the information provided is at the investor’s sole risk. Grizzle shall not be liable for any loss, damage, or expense
of any kind resulting from the purchase of securities of a mentioned company. Grizzle may seek or may be currently doing business with companies
featured in content originating on Grizzle.com. The information contained herein is the opinion of Grizzle and is intended to be used strictly for
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disclosure, employees of Grizzle personally purchased and currently own stock in Aphria, Inc.

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[RESEARCH]

SCOTT WILLIS, CFA

BASE CASE SCENARIO ($40/SH)

Aphria reaches funded growing capacity of 210,000 kg in 2019 and expands to

SECULAR UPSIDE ($200/SH)

APHRIA INC. | GRIZZLE CONVICTION SERIES 1

CANNABIS SECTOR OUTLOOK: SECULAR

APHRIA STOCK TRADES AT A DEEP DISCOUNT 6

APHRIA IS ONE OF THE HIGHEST QUALITY

LOWEST GROWING COSTS IN THE INDUSTRY

WHY A LOW-COST STRUCTURE IS A KEY PATH

THE APHRIA MANAGEMENT TEAM IS THE

APHRIA’S PRODUCT ECONOMICS 32

APHRIA IS FUNDAMENTALLY WORTH $40/SH TODAY

APHRIA INC. | GRIZZLE CONVICTION SERIES 2

RISE IN OPIOID OVERDOSE DEATHS

Source: CDC National Vital Statistics System Mortality File

APHRIA INC. | GRIZZLE CONVICTION SERIES 3

THE MERGER & ACQUISITION BOOM

Other global multinational consumer companies have been put on notice by

APHRIA INC. | GRIZZLE CONVICTION SERIES 4

APHRIA IS ONE OF THE HIGHEST QUALITY TAKEOVER

• A low valuation compared to similar sized cannabis stocks

LOWEST GROWING COSTS IN THE INDUSTRY MAXIMIZE

THE APHRIA MANAGEMENT TEAM IS THE BEST IN THE

APHRIA INC. | GRIZZLE CONVICTION SERIES 5

ESTIMATED EV/EBITDA MULTIPLE IN 2020

Marijuana Companies Comparable Industry Averages

Source: Grizzle Estimates

APHRIA INC. | GRIZZLE CONVICTION SERIES 6

A DIVERSIFIED GROUP OF ASSETS ALL OVER THE WORLD

A MANAGEMENT TEAM THAT CAN EXECUTE WITH A

A GOOD RETURN ON THE MONEY THEY PUT IN

APHRIA INC. | GRIZZLE CONVICTION SERIES 7

ALL-IN PRODUCTION COSTS PER GRAM

Aphria management has decades of greenhouse growing and engineering experience,

APHRIA INC. | GRIZZLE CONVICTION SERIES 8

COMMODITY PRICING EXAMPLE: IRON ORE

IRON ORE PRICE VS CASH COSTS

C(25) C(50) C(75) C(90) Price

Source: AME Group, Bloomberg, Bernstein analysis

APHRIA INC. | GRIZZLE CONVICTION SERIES 9

LOW-COST PRODUCERS GENERATE CASHFLOW IN GOOD MARKETS AND BAD

APHRIA IS THE BHP BILLITON OF CANNABIS

BY BEING THE LOW-COST PROVIDER OF A CERTAIN GOOD YOU ENSURE THAT

APHRIA INC. | GRIZZLE CONVICTION SERIES 10

$160 (USD/tonne) 14 US$ billion

BRINGING AUTOMATION AND TECHNOLOGY TO GROWING

Robot Planting Arms | Source: youTube.com

APHRIA INC. | GRIZZLE CONVICTION SERIES 11

Automated Packaging | SOURCE: Busch-Machinery.com

APHRIA INC. | GRIZZLE CONVICTION SERIES 12

Mr. Neufeld’s father was a farmer, so he grew up with hands-on

Jamieson exports products to 28 countries outside of Canada so Neufeld has significant

APHRIA INC. | GRIZZLE CONVICTION SERIES 13

Mr. Merton is one of only 1,800 chartered business valuators (CBV

SALES, BRANDING, AND MARKETING EXPERT

APHRIA INC. | GRIZZLE CONVICTION SERIES 14

They both have deep experience in the construction and operation

Mr. Cacciavillani is extremely hands on and is overseeing the

Mr. Cervini is an expert in hydroponic growing techniques and

PRODUCT QUALITY AND SAFETY IS IN APHRIA’S DNA

CEO Vic Neufeld brought his head of quality assurance, Gary

One example of how Aphria goes above and beyond when it