This morning a lengthy report delving into Aphria (APHA) was released by Hindenburg Research ,and the market reacted immediately with Aphria’s stock dropping 27%. The report mentioned the Nuuvera transaction earlier this year, as well as quality issues with Aphria’s product, but the main theme of the piece was Aphria’s South American dealings, which includes a pattern of setting up shell companies to benefit insiders, or so the report claims.
The report was spread rapidly across the internet, making its way to SeekingAlpha and BNN. Aphria IR is looking to pursue legal action against Quintessential Capital for funding the report claiming the allegations to be false and defamatory.
The report claims that Aphria’s acquisitions follow a strange pattern:
- Aphria insider Andy DeFrancesco sets up or acquires an international company, providing a token justification for an acquisition (e.g., conditional cannabis licenses, a leased facility, purchasing a small existing local business.)
- The international company is then purchased by a Canadian shell company under the control of DeFrancesco through his closely held private equity firm, the Delavaco Group.
- The shell company agrees to be acquired by Aphria’s ‘sister’ company, Scythian Biosciences, where Vic Neufeld, Aphria’s Chairman/CEO, and DeFrancesco hold key insider roles.
- Scythian then sells its stake in the entity to Aphria at a large markup.
- As a result, DeFrancesco and unnamed associates get cash and/or Scythian shares, Scythian gets cash and/or Aphria shares, and Aphria’s shareholders get international assets that are essentially worthless.
Aphria has just put out a press release regarding the report,it is vague and doesn’t contain any specific information.
If the report is false as Aphria claims, all parties involved are in trouble, but If the report is in fact true, Aphria is in a lot of hot water and investors may be eligible to pursue legal action against the company.
We have no opinion as to whether we think the report is true or not, however, if it is in fact false the people behind it went very far to create this story. This 8,120 word article goes far beyond a Citron report, and even reports we have done in the past on companies we think may be involved in less than desirable dealings.