Aphria Inc. (NYSE: APHA) shares plummeted by 25.45% on Tuesday after a short seller released a report regarding the credibility of the Company’s operations and its previous acquisition in Latin America.
Aphria acquired holdings in LATAM, which consists of assets and licenses in Colombia, Argentina and Jamaica. The acquisitions came under fire by Quintessential Capital Management after it said that the Company’s acquisition are worthless.
SOL Global Investments Corp., the Company that sold Aphria the assets, said it was satisfied with the transaction and boasted further by saying that the emerging LATAM region is a significant growth opportunity for cannabis companies.
Despite SOL’s comments, Hedge Fund Manager Gabriel Grego of Quintessential thought otherwise. Grego called Aphria a “black hole” for investors, saying that the acquisitions were executed through shell companies that seem to be controlled by Aphria’s insiders. Grego believes that Aphria is a “primary a scheme to funnel funds from retail shareholders into insiders’ pockets.”
Grego continued his presentation and went onto talk about Aphria’s acquisition of LATAM Holdings back in September. In the transaction, Aphria acquired Jamaica-based Marigold Acquisitions Inc, Argentina-based ABP, S.A., and Colombia-based Colcanna S.A.S, according to filings.
After launching an investigation into the acquisitions, Grego concluded that Aphria overpaid for the companies, which are held by insiders in South America and the Caribbean. Grego continued to say in his presentation that Aphria acquired these assets from SOL Global Investments Corp., which acquired those companies shortly before for a significantly lower price from Canadian shell companies. The shell companies are linked back to Andy DeFrancesco, who is the Chairman of SOL and adviser to Aphria.
Aphria said it believes that the purchase price of the assets is comparable to other Latin American deals by other large Canadian cannabis companies, which Grego then goes into by comparing the acquisition to Tilray’s (NASDAQ: TRLY) recent transaction.
Tilray purchased Alef Biotechnology back in October for approximately CAD 5 Million. Grego compares the Tilray’s transaction to Aphria’s acquisition of ABP, which it acquired it for approximately CAD 48 Million. Alef reports sales of approximately USD 1.3 Million, while ABP reports significantly less of approximately USD 400,000, according to Grego’s investigation.
Then Grego discussed the acquisition of Marigold, which through filings he found the address of the Company. Grego visited the facility and upon arrival, he discovered that the site was run-down and foreclosed and also that its offices are basically inactive. Furthermore, Grego discovered that on filings there were three more leases, particularly in focus was the hemp house that was listed under Suite #6, Unit 51. According to the landlord, Unit 51 does not exist and the units only go up to 50.
After the allegations, analysts were divided on Aphria, according to Bloomberg. Grego said in a conference that his price target for Aphria is zero. Similarly, BMO analyst Tamy Chen cut her price target for Aphria from CAD 22 to CAD 9, citing uncertainty revolving around the stock.
Meanwhile, GMP Securities analyst Martin Landry put his rating and price target under review, citing the credibility of Aphria’s management and the allegations raised in the report. Previously Landry held a price target of USD 22 for the Company’s stock.
However, Scott Willis, analyst at Grizzle, gave Aphria the benefit of the doubt and said that it is unlikely regulators will find enough material to come down hard on Aphria.
“What we can definitively say is Aphria is not a worthless stock,” he wrote in a note published Tuesday, pointing to its CAD 314 Million in cash and plans to harvest 255,000 kilograms of cannabis by next year. “Even if we remove all international assets from the equation, Aphria is a C$20 stock based on the Canadian greenhouses alone.”
Aphria shares have now plunged by 61.5% since uplisting onto the New York Stock Exchange.