Citron Sees Big Upside In Aphria, Says 'The Bidding War Is On'

Aphria Inc APHA surged Tuesday after the stock got the attention of a high-profile short seller, but this one is actually extremely bullish on the stock.

Citron Research’s Andrew Left said he's bullish on Aphria and predicted the stock could hit $8 within the next two weeks, roughly 47 percent upside from Monday’s closing price.

The Thesis

Dramatic shifts in Washington, including the ouster of anti-marijuana Attorney General Jeff Sessions and chief of staff John Kelly and the addition of pro-legalization chief of staff Mick Mulvaney has cleared the path for potential federal cannabis reform, according to Left.

Left says major U.S. companies are steering clear of cannabis until it's legalized federally.

“Even though federal legalization is around the corner, it will still take at least 18-24 months for the law to change which makes the Canadian Cannabis LPs the only game in town in the near-term,” Left wrote in the report.

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Investments And Buyouts

Left said Aphria, Tilray Inc TLRY and Aurora Cannabis Inc ACB are the only three U.S.-listed cannabis companies that have yet to announce an investment by a major U.S. partner, but the valuations of Tilray and Aurora are much too high for any deals at the moment.

Left said Aphria has generated about $35 million in revenue in the past 12 months. Using the same revenue valuation multiple as MedReleaf when it was acquired by Aurora, Left estimates a similarly-priced buyout for Aphria would value the stock at about $11 per share.

Earlier this month, Quintessential Capital founder Gabriel Grego named Aphria as a top short idea and said some of the companies Aphria has acquired have almost no value or positive fundamentals and accused the company of hiding the fact that Aphria insiders have been involved with acquired companies.

Left acknowledged Grego’s claims, but said he has a different take on the situation.

“Although the report was well researched, the eulogy that the short sellers were writing on Aphria had to get put on hold as the dynamics of the whole industry have just changed,” he said.

Price Action

Aphria stock was up 6.8 percent at $5.81 Tuesday afternoon, but remains down 60 percent overall in the past three months.

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