Aphria Special Committee Concludes LATAM Purchase Was Within 'Acceptable Range'

Aphria Inc APHA shares surged Friday morning when a Special Committee vindicated management in its LATAM Holdings acquisition and product quality.

A Special Committee examining the assets found the LATAM purchase was “within an acceptable range as compared to similar acquisitions by competitors,” according to a press release. It also confirmed the existence of LATAM’s facilities, licenses and employment, which had been in doubt following short-seller accusations.

Additional findings were more condemning, as some of the board’s directors held previous stakes in LATAM that had not been disclosed upon purchase.

What Happened

In December, short sellers tagged Aphria a “shell game.” They accused management of buying companies with neither value nor positive fundamentals partly to rescue Aphria insiders involved in the failing operations.

“We believe there’s something sinister happening in this company,” Quintessential Capital founder Gabriel Grego said at the time. “These acquisitions get made from shell companies that are theoretically at arm’s length, but we can see very clearly there was the presence of some of the company’s insiders.”

Grego also accused Aphria of producing poor-quality cannabis.

Shareholders pulled back on Aphria as they considered the alleged deception, and Aphria’s Board of Directors appointed an independent Special Committee to investigate claims.

Why It’s Important

The Special Committee’s assertion of value in both LATAM Holdings and Aphria’s cannabis provides some relief and absolution.

"The constructive conclusion to this long process has strengthened the Company,” independent board chair Irwin Simon wrote in the press release. “Though I was not part of Aphria at the time of the LATAM acquisition, the Special Committee's findings give me and the Board full confidence that it was executed at an acceptable value and is consistent with the Company's international growth strategy."

Aphria will soon replace its non-independent board directors with independent directors. It will also consider corporate governance recommendations made by the Special Committee.

The stock traded at $9.66 per share Friday morning, up 6.3 percent.

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