Weed stocks: Aphria keeps tumbling on short seller allegations

MarijuanaCourtesy of CannTrust

• Aphria tumbled for a second day Tuesday after a short seller alleged Monday that the company‘s Latin American acquisition is “largely worthless” and benefitted insiders.
• Shares fell more than 23% on Monday, following the report. 
• Aphria Monday said the allegation was”a malicious and self-serving attempt” to manipulate Aphria’s stock price and that its LATAM acquisition “received financial advice and a fairness opinion from a reputable firm.”
• Aphria moved to the New York Stock Exchange from Canada in November. 
• Watch Aphria trade live.

The marijuana producer Aphria fell more than 25% early Tuesday— to a low of $4.50 a share in pre-market trading — after a short seller on Monday alleged the company‘s Latin American acquisition was “largely worthless” and benefitted insiders. 

Aphria insiders used funds from dilutive share issuance to complete its overvalued LATAM acquisition and diverted millions of dollars “from shareholders into their own pockets,” short seller Quintessential Capital Management’s Hindenburg Research said Monday in a report titled “Aphria: a shell game with a cannabis business on the side.” Shares tanked as much as 30% following the report. 

Aphria responded Monday in a press release, calling the allegations “a malicious and self-serving attempt” to manipulate Aphria’s stock price.

Aphria said that in connection with its LATAM acquisition, which closed on September 27, the Board of Directors of “received financial advice and a fairness opinion from a reputable firm that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view, to Aphria and its shareholders.”

According to Quintessential, the deals had fraudulent financial reporting and Aphria insiders have diverted as much as $700 million, or nearly half of its total net asset, through these transactions.

Quintessential points to Aphria’s announcement in July that it planned to buy Marigold Acquisitions for $145 million from its sister company, Scythian Biosciences, where CEO Vic Neufeld also served as chairman. The short seller says Marigold Acquisitions isn’t worth the valuation, and that its official registered office is an abandoned building that was sold off by its mortgage lender in January. 

Quintessential alleges that Scythian served as the bridge in the shell game — agreeing to buy the shell Latin American companies and then sell its stake in the entity to Aphria at a large markup. The acquisitions were financed by copious and dilutive share issuance, Quintessential added. 

Aphria, one of Canada’s largest marijuana producers, listed on the New York Stock Exchange in November, transferring from Canadian markets. Shares exploded by as much as 155% in August and September after as tobacco makers such as Imperial Brands and beverage companies such as Constellation Brands triggered a “green rush” by entering the cannabis space.

But cannabis stocks including Aphria have been under pressure recently as traders sold the news of Canada becoming the second country to legalize the drug. 

Aphria was down 56% this year through Monday.

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