The No. 1 Problem With Marijuana Earnings Reports

Reading an earnings report is a great way to assess the health and performance of a company. Unfortunately, when it comes to marijuana producers, the process of analyzing the results is not as straightforward as it is with companies in other industries. Not only has the cannabis industry gone through many changes over the past few years, but several items can skew perception of a company's performance.

Items like revaluation gains and losses on inventory and even liabilities can have significant impacts on whether a company is profitable during a quarter. A good example is Aphria (NYSE: APHA), one of the few pot producers to post profits with any degree of consistency. However, the way it's been doing so hasn't been by selling a product at strong margins and keeping its costs low, which is how you might expect most companies to turn profits. In Aphria's case, nonoperating items have played a significant role in the earnings results.

Last quarter, Aphria generated a profit of 16.4 million Canadian dollars. However, non-operating income came in at CA$20.3 million, while fair-value adjustments to the company's assets added another CA$17.9 million to its bottom line.

Source Fool.com