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Aphria Shares Tumble After Short Seller Allegations

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Shares of Aphria Inc. (APHA) tumbled more than 23 percent in Tuesday's regular trading on the New York Stock Exchange after a short seller called the Canada-based medical cannabis company a "black hole" and alleged that the company's recent Latin American acquisitions appeared to be largely worthless.

Gabriel Grego, founder of hedge fund firm Quintessential Capital Management, said at a conference in New York on Monday that Aphria has diverted about half of its net assets into inflated investments held by insiders.

Forensic analysis firm Hindenburg Research, in a report co-authored with Quintessential Capital, noted that Aphria's recent C$280 million Latin American acquisitions raises "major red flags" after the firm's extensive on-the-ground research showed that the transactions appeared to be "largely worthless" and appeared to have clear signs of insider self-dealing.

"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," Hindenburg said in the report.

Both Quintessential and Hindenburg said they are shorting Aphria.

The report noted that the official registered office of Aphria's C$145 million Jamaican acquisition is an abandoned building that was sold off by the bank earlier this year.

In addition, Aphria's C$50 million Argentine acquisition publicly boasted sales of $11 million in 2017, while a worker at the company affirmed that the company's 2017 revenue was only $430,000.

According to the report, Aphria also "consistently generates negative cash, and its cannabis seems to be of low quality".

In response to the allegations, Aphria said it believes the short-seller report is a malicious and self-serving attempt to profit by manipulating Aphria's stock price at the expense of Aphria's shareholders.

Referring to its Latin American acquisitions, Aphria said it had received financial advice and a fairness opinion from a reputable firm that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view, to Aphria and its shareholders.

Shares of Aphria commenced trading on the NYSE on November 2, 2018 and have so far touched a low of $5.60 and a high of $13.45.

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