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Dear Mr. Berko: I鈥檝e invested off and on in about a dozen pot stocks and lost money each time. I鈥檝e been looking at Aphria for three months and can鈥檛 make up my mind. What do you think?

H.L.

Wilmington, North Carolina

Dear H.L.: I don鈥檛 know enough about the cannabis industry to pick a winning pot stock from the many hundreds trading between pennies and a few dollars. These issues are pushed by bucket shop brokers whose commissions are 50 percent of what the stock sells for. Buyout and merger gossip is so capricious that many pot stocks trade up or down by 50 percent on any buyout rumor. In fact, there鈥檚 a rumor Boeing may take over a pot company and pass out product to passengers on its 737 MAX.

But Ian Gendler at Value Line thinks he has a handle on Aphria (APHA-$7.75), which began trading on the Big Board last year, just before Thanksgiving. Homeported in Canada, Aphria (via partners and distributors) cultivates, processes and distributes quality cannabis products to users in several countries. Its products are professionally and carefully cultivated in a high-tech, gleaming, 300,000-square-foot pot farm in Ontario. And unlike most penny pot stocks held together by flimsy business models and dog patch yokel CEOs in bib overalls, Aphria may be one of the top guns in this industry. Its officers and directors are serious businessmen, it elects a legitimate board of directors, and it uses a respected accounting firm.

This year, Aphria expects to put about $150 million of consistently high-class product on the market (many pot firms produce varying and undependable product quality), and should earn a clean dime a share or total net income of $25 million. That鈥檚 a 16 percent-plus net profit margin. Gendler reckons Aphria can increase revenues in 2020 to $555 million and report a profit of $0.30 per share or a total net profit of $90 million. And a billion dollars in revenues may be just a few years off.

According to the United Nations (an oxymoron), the global market for pot is currently $175 billion. There are over 200 million adults (over 21) using marijuana cultivated in 130 countries, and it is the most widely illicitly produced drug on the planet. In June 2018, the U.N. declared cannabis an effective and 鈥渞elatively safe drug.鈥� And in the coming years it鈥檚 hoped that most countries will legalize pot and then we can all get a bong.

I doubt Aphria is going to knock your socks off and run to $30 or $40 a share this year or next. Green Growth Brands (GGBXF-$3.50) made a short run at Aphria last year at $8.75 a share and was quickly turned down. Still, Aphria has a strong 2019 cash flow of $0.15 a share and possibly $0.35 in 2020. Book value of $6.25 this year could top $6.90 next year, while return on total equity and total capital could triple to 4.5 percent in 2020 from 1.5 percent last year.

Long-term debt in 2020 is expected to increase from $50 million to $60 million, which is about 3 percent of capitalization. However, management recently completed raising $300 million with a 5.25 percent convertible bond. Meanwhile, I鈥檓 surprised that Quaker Impact Growth Fund and Quaker Small/Mid Cap own 80,000 shares, and pleased to see that S&P rates Aphria a hold.

If you鈥檙e comfortable owning Aphria, then pull the trigger. The longer you sit on the pot, the more difficult it鈥檒l be to make a decision. Either do it or don鈥檛. The IPO price was $10 a share last November, and Aphria has since enjoyed a price range between $3.50 and $16.85. The only way to own this stock is as a long-term investor. I suspect in the next few years Aphria could be a $30 stock.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. 漏 2019 Andrews McMeel Syndication