Aphria Fires Back Following Short Seller Allegations, Stock Continues Fall

Aphria Inc APHA responded Tuesday to criticism from a pair of short sellers that sent the stock tumbling 23 percent Monday. Despite reassurances from Aphria management Tuesday morning, shares opened lower by another 20 percent.

Short Seller Allegations

Quintessential Capital founder Gabriel Grego named Aphria as a top short idea, and said his call has nothing to do with his outlook for cannabis stocks in general. Hidenburg Investment Research co-authored the bearish thesis in a post on Seeking Alpha giving a detailed description of the red flags they see at Aphria.

Grego 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.

“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 said.

Grego and Hidenburg Research specifically targeted Aphria’s Latin American business, suggesting the headquarters of its Jamaican acquisition are located in an abandoned building and 2017 revenue from its Argentinian acquisition was overstated by more than 95 percent.

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Aphria Responds

On Tuesday, Aphria issued a press release assuring shareholders the company has always operated with their best interest in mind. In the release, CEO Vic Neufeld addressed Aphria’s recent acquisition of LATAM Holdings Inc.

“International operations are a core component to our proven growth strategy and we are working to integrate and enhance operations and product channels throughout Latin America to position them for sustainable, long-term shareholder value creation,” Neufeld said.

Aphria said its Jamaican operations are “fully operational” with 22 employees who have harvested 2,500 kg of cannabis to date. While Aphria did not specifically address allegations of inflated Argentinian revenue, the company said its Argentina subsidiary is “a well-established and successful pharmaceutical import and distribution company.”

Market Remains Skeptical

Neufeld also announced he has demonstrated his belief in the trajectory of the company by personally purchasing more than $3.1 million of Aphria common stock on Monday.

Despite Neufeld’s financial commitment, the market still seems rattled by the allegations, and investors may have been disappointed that the company didn’t specifically address many of the short sellers’ accusations of insider involvement and inflated numbers.

After Tuesday morning’s sell-off, Aphria’s Canada-listed stock is now down 66 percent year-to-date. Shares traded around $4.52 at time of publication.

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