In this market news, Aphria Inc. (TSX:APHA) (NYSE:APHA), one of the Canadian marijuana stocks, rigorously defended itself against a short seller’s assertions
SmallCapPower | December 5, 2018: Aphria Inc. (TSX:APHA) (NYSE:APHA), one of the Canadian cannabis stocks, saw its stock drop nearly 28% on the TSX Monday after a short seller termed the stock a “black hole.” At a conference in New York on Monday, Gabriel Grego, founder of Quintessential Capital Management, said that Aphria had diverted funds into inflated investments held by insiders. As per his report, in conjunction with Hindenburg Research, Grego asserted that Aphria is a worthless company. Both Quintessential and Hindenburg have given sell recommendation on Aphria. Grego further added that the target price for Aphria is zero.
However, Aphria refuted the claims made by Grego categorically. “Allegations that have been made by the short seller Quintessential Capital are false and defamatory. The Company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital,” remarked Tamara Macgregor, Aphria Inc’s Vice President of Communications.
Grego said that Aphria devised a mechanism to siphon off money to companies held by insiders in South America and the Caribbean, which is against the interest of shareholders. Further, Aphria purchased companies in Argentina, Colombia, and Jamaica in September from Scythian Biosciences Inc., now named SOL Global Investments Corp., which had acquired them shortly before at a ‘significantly lower’ price from three Canadian shell companies. All the shell companies have links with Scythian-SOL’s Chairman and Aphria’s Adviser, Andy DeFrancesco. All three units can be traced back to Delavaco Group, DeFrancesco’s private equity company.
On Tuesday, Aphria asserted that its LATAM acquisition was negotiated at arms’ length between two publicly-traded companies, each of which retained professional financial advisors, and that Aphria’s Board of Directors received financial advice and a fairness opinion from Cormark Securities.
Grego’s Quintessential became infamous among short-sellers after targeting Greek retailer, Folli Follie, in May 2018 by alleging that the company had overstated its store network and revenue. The company rebuffed the allegations first but later confirmed that the consultants hired had revealed Asian unit’s revenue was ~90% lower than the reported figures.
Headquartered in Leamington, Ontario, Aphria is the fourth largest cannabis stock by market value in Canada and has raised about C$700 million over the past four years. Aphria stock currently trades at a market capitalization of $1.53 billion with a price-to-book ratio of 1.30x.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
To read our full disclosure, please click on the button below: