Organigram Holdings (NASDAQOTH:OGRMF) and Aphria (NYSE:APHA) recently reported quarterly results that did not meet expectations.

Both stocks fell after analysts revised their forward outlook downward, but some intrepid investors are convinced they can bounce back once Health Canada hammers out a few kinks in the cannabis supply chain. Which marijuana stock has a better chance to provide shareholders with market-beating gains over the long run? Let's find out.

The case for Organigram Holdings

This licensed producer from New Brunswick recently announced results from its first full quarter of adult-use recreational cannabis sales, and there were some important highlights. During Organigram's fiscal second quarter, which ended on Feb. 28, net revenue more than doubled from the previous three month period.

Organigram will have a lot more product to sell in 2020. Expansion of the company's giant greenhouse is underway and it's expected to produce 113,000 kilograms annually by the end of the year. Thanks to careful investments, the company will be ready for the expected introduction of edibles and vaporizer cartridges this fall. Its product line could include a proprietary shelf stable, water-soluble and tasteless cannabinoid nano-emulsion formulation for beverages that starts working in 10 to 15 minutes, instead of an hour like most edibles. 

Unlike some of its peers, Organigram's operations are nearly profitable. During the fiscal second quarter, revenue soared 693% on year to 26.9 million Canadian dollars, and operations lost just CA$1.8 million. If Canadian sales continue to grow, even at a modest pace, it looks like this well-managed cannabis producer can eke out an operating profit in fiscal 2020.

So far, international sales have been too low to bother mentioning, but that could change soon. Last July, Organigram sent its first international cannabis shipment to Australia. More recently, the company acquired 25% of Alpha-Cannabis Germany, a privately held medical marijuana provider. 

Organigram will provide Alpha-Cannabis with dry flower for conversion into higher-value products, but it might have to ship cannabis grown abroad. German cannabis production licenses are extremely limited, and Organigram's first attempt to earn one failed and there are no guarantees it will get lucky the next time around.

The case for Aphria

Aphria's international footprint is several times larger than Organigram's. Last March, Aphria acquired Nuuvera, an international organization with subsidiaries in Israel, Germany, Italy, Malta, and Lesotho.

With a population more than twice that of Canada's, Germany's expected to become the world's second largest market for medical marijuana and Aphria's position in this space is much better than Organigram's. Aphria was one of just three companies chosen by Germany's Federal Institute for Drugs and Medical Devices to cultivate and distribute medical cannabis.

Last September, Aphria acquired a collection of assets throughout South America and the Caribbean of questionable value. Allegations that Aphria insiders had a financial stake in some of the businesses purchased pressured the stock last year and led to the dismissal of certain insiders, including the CEO, Vic Neufeld. 

The Ontario Securities Commission insisted that the company reassess the value of the Latin American assets, which Aphria created 15 million new shares to pay for. Aphria ended up paying a third party CA$2.4 million to learn it overpaid for them. The company, not the consultant, decided on a CA$50 million writedown during the fiscal third quarter, which ended on Feb. 28, for assets acquired six months earlier.

We may never find out just how much Aphria's Latin American operation is worth. The company's new management team implemented stricter controls over financial reporting and disclosure but specifically excluded the disputed Latin American acquisitions from those new requirements. 

For some reason, Aphria also excluded a German distribution subsidiary acquired this January called CC Pharma. Releasing this foreign subsidiary from new disclosure and financial reporting controls should make investors nervous because Aphria leaned on CC Pharma's operations for 76.2% of total revenue recorded during the three months ended February.

While it looks like the distribution business was a worthwhile purchase, Aphria appears to be having trouble selling medical marijuana in Canada. During the fiscal third quarter, sales of cannabis that Aphria actually produced fell to CA$17.9 million from CA$24.5 million during the previous three months.

Unlike Organigram, Aphria is a long way from reaching positive cash flows. Sales, general, and administrative costs reached CA$29.4 million during the third quarter, which was 70% more than the gross profit available to meet those expenses. As a result, third-quarter losses swelled to CA$108 million.

Trouble ahead

According to Health Canada, licensed cannabis sales fell for the second month in a row in February. Thanks to high taxes, inconsistent quality, and an illicit market that operates with impunity, licensed cannabis sales probably aren't getting any higher in Canada. 

Aphria's running out of cash, so the company plans to offer $300 million worth of convertible notes in April. If Aphria can't repurchase these notes by 2024, they'll convert into 37.3 million new shares.

Aphria is a long way from positive cash flows and will probably resort to more dilutive financing before it stops bleeding money, and it sports a $1.9 billion market cap at the moment. Organigram's approaching profitability and valued at just $996 million, which makes it a much better marijuana stock right now.