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Aphria Stock Plunges in Short Attack

Wednesday, December 5th 2018
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Aphria’s stock plunged after short-seller Quintessential Capital Management alleged in a report the company was a “black hole for shareholders’ money.” (CBC Business)

  • On Tuesday morning, the New York Stock Exchange briefly stopped trading on Aphria stock. (Twitter--Bloomberg)
  • QCM’s Gabriel Grego said Monday that Aphria spent C$700M on subsidiaries that added no value to the company, “[exhibiting] little or no sales or operating activity, minimal assets and questionable corporate governance.” He also alleged that these investments benefited company insiders. (Seeking Alpha)
  • QCM investigated Aphria in partnership with forensic analysis company Hindenburg Research, which called Aphria “A Shell Game with a cannabis business on the side.” Hindenburg is also shorting Aphria, and will also profit if Aphria’s stock declines. This is the second time this year Hindenburg launched a short-attack on Aphria. (Globe and Mail)
  • Grego told a conference that “Our target price for Aphria is zero.” (The Star)
  • Aphria called the statements “false and defamatory [… a] malicious and self-serving attempt to profit.” (Bloomberg)
  • QCM tweeted, “We welcome any legal action from Aphria and look forward to the document discovery review process.”
  • Aphria published a detailed response to QCM's allegations, including that Marigold Projects Jamaica, which Aphria purchased in July, was registered to an abandoned building. Marigold, Aphria said, has Tier 3 and Tier 2 cultivation licenses and has produced 2,500 kilograms of cannabis.
  • The company also said executives bought C$3.1M worth of Canadian shares on Monday to demonstrate their confidence in the company.
  • Private equity investor Andrew DeFrancesco (also chairman and CIO of SOL Investments Group, formerly Scythian Biosciences), lashed out at Grego's suggestion that he was an Aphria insider, as well as against the allegation he used shell companies to acquire assets he then sold to Aphria at inflated prices. In 2013, DeFrancesco made a C$6.2M "founding" investment in Aphria. (Financial Post)

The Canadian Securities Administrators, a federal body comprising 13 provincial and territorial securities regulators, is investigating “abusive” short-selling in Canada, at a time of increasing activist short-selling. (Financial Post)

  • In a recent interview with the Canadian Cannabis Update podcast, Namaste co-founder Kory Zelickson blamed abusive and potentially illegal behaviour by short-sellers for controversy his company has faced in recent months. (Soundcloud, Proactive Investors)
  • The CSA is also examining “problematic” promotions in the cannabis, cryptocurrency, blockchain, and mining industries. The promotions in question involve companies changing their names to imply connection with those industries without evidently changing their business plans.