Aphria shares dive for second day amid questions in wake of short-seller report
LEAMINGTON, Ont. - Uncertainty swirled around Aphria Inc. Tuesday in the wake of a short-sellers' report that targeted its recent Latin American acquisitions and raised questions about its operations in the region.
BMO Capital Markets slashed its target price to $9 from $22 and will continue to rate the Leamington, Ont-based marijuana producer's shares as speculative, a day after short-sellers Quintessential Capital Management and Hindenburg Research called the company a "black hole" and alleged that its recent international acquisitions totalling roughly $280-million were "largely worthless."
BMO analysts Tammy Chen and Peter Sklar said the short-seller's accusations prompted them to feel "there will be considerable uncertainty" around the stock, while GMP Securities put its rating and target under review until it receives more "visibility" around Aphria.
"We believe that management's credibility may have been impacted by the allegations raised in this report," said GMP's Martin Landry, in a note to investors. "It is unclear at this point how the company will re-establish trust with investors."
Shares in the Leamington, Ont-based marijuana producer were down an additional 17 per cent or $1.32 at $6.28 in afternoon trading Tuesday, after falling nearly 28 per cent on Monday.
The dive followed a report by Quintessential and Hindenburg, which claimed Aphria acquired foreign companies — ABP, Marigold Projects Jamaica Limited and Colcanna S.A.S. — in countries including Jamaica, Argentina and Colombia at "vastly inflated" prices and in ways that it believes benefit a group of insiders.
The allegations, which have not been independently verified, include accusations that the official registered office of the $145-million Marigold Projects Jamaica Limited was a recently-sold abandoned building. Quintessential and Hindenburg also said Aphria's $50-million ABP acquisition had publicly boasted sales of US$11-million in 2017 but allege that the annual revenue was only US$430,000 according to a worker.
The acquisition of licenses and other assets and related businesses in Colombia, Argentina and Jamaica and a right of first offer and refusal in respect of Brazil were an important strategic deal, Aphria chief executive Vic Neufeld said Tuesday, in a five-page statement detailing his response to the accusations in detail.
"Aphria is committed to good corporate governance and transparency," Neufeld said. "The Latin American acquisition was a transaction negotiated at arms' length between two publicly traded companies each of which retained professional financial advisors."
Neufeld said he and other members of the company's executive team personally bought a total of more than $3.1 million in Aphria shares on Monday as a demonstration of confidence in the company.
"It is the commitment of our incredible team and partners that has gotten us to where we are today, making Aphria a global cannabis success story," Neufeld said.
Following Neufeld's comments, Quintessential and Hindenburg attacked Aphria again, saying its recent statements "did nothing to dispute our core findings."
"We demand that the company actually respond to our research and allegations," a statement from the short-seller said. "Shareholders deserve FULL TRANSPARENCY on these issues and we will continue to report on this subject until they receive it."
Companies in this story: (TSX:APHA)