Aphria Stocks Tumble on Prominent Short Seller’s Report
Quintessential Capital Management’s Gabriel Grego released a report on Aphria Inc. entitled “A Shell Game with a Cannabis Business on the Side” causing the stock to drop 27 per cent on Monday, December 3 to $7.60 per share. It dropped again Tuesday to close at $5.99 per share. The report starts with the bold assertion that company insiders are essentially defrauding investors. “We are of the strong opinion that Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.”
Aphria was quick to dispute the report when it was first released the previous week, then released its own detail rebuttal on December 3. In it, the company outlined its assets including production facilities and licences. The rebuttal also noted that all deals had been reviewed by Cormark Securities Inc. and determined to be fair value for the company.
So who’s telling the truth? A December 5 CBC article (link below) refers to Gabriel Grego as a “prominent short seller” and reminds readers in the third paragraph that short sellers only make money when stocks drop in price. On the other hand, Grego’s paper details other “glaring red flags” about past transactions already published in the media including a Globe and Mail article from March 2018 about Aphria insiders holding unreported stock in a company it was taking over.
Aphria CEO Vic Neufeld and other executives tried to bolster the stock by purchasing $3.1 million worth of shares on December 3 in a “vote 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.
Venture capitalist Andy DeFrancesco, who was an adviser to Aphria during its acquisitions and who Grego also questions in the report, also refuted Grego’s report stating that he was misleading investors so he could make money selling short.
“Let facts present themselves,” DeFrancesco tweeted. “I’m truly disappointed for all investors someone posting fake truths is able to do so much damage. I can’t change that. But we can refute every point and I’m positive opinions will change. These are 2 great companies with great people behind them.”
As of this writing, it’s still unclear what the facts are – or what the share price will do on Day 3 of the dispute. But given cannabis stocks continuing volatility and investors’ relative lack of due diligence, it’s clear that the real winners in the cannabis investment game will be those who take the time to understand the numbers.
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