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Aphria focused on production, remains mute on takeover bids and short-seller allegations

Aphria Inc. (TSX:APH) (NYSE:APH) ended the week with two major announcements on Friday. The company reported their first quarter financial results for 2019, which ended with a 63 percent increase in net revenue over the last quarter. In the same breath, the pot stock dropped another bomb, announcing the executive transition of CEO Vic Neufeld and co-founder Cole Cacciavillani. Both men will be stepping down from their roles with the company but will continue to work with Irwin D. Simon, Aphria’s Chair, to complete the transition.

Vic Neufeld touched briefly on the executive transition during the company’s conference call on Friday morning. He assured investors that Aphria’s board was in support of the decision. The transition is intended to give Aphria their best shot at global domination.

[Marijuana stocks weekend investor roundup: Analysis of the week's most important events in the cannabis industry (January 12)]

“To realize these global opportunities for the maximum benefit of Aphria’s shareholders, customers, employees, it’s clear to me...that Aphria needs an equally globally-minded leadership team to lead the company into the next chapter,” Neufeld stated on the call.

Aphria came under scrutiny last month when short-sellers attacked their global investments in Latin America. There was speculation that certain investments made in these emerging markets were “part of a scheme orchestrated by a network of insiders to divert funds away from shareholders.” In response, Aphria assigned an independent committee of advisors and directors to complete their own investigation.

Aphria Records 63% Net Revenue Growth in Fiscal 2019 Second Quarter; Announces Executive Team Transition https://t.co/dkdcWk9lfB

— aphria (@aphriainc) January 11, 2019

According to Neufeld, the committee is still investigating. Out of respect for the independent committee, he refused to comment further, but he did not hesitate to add: “I will point out that multiple respected journalists and analysts have independently analyzed our disclosures and/or visited our Latin American facilities, leading them to refute the short-seller’s allegations.”

If investors were hoping for more of an explanation, they were sorely disappointed. Neufeld relayed his optimism regarding the ongoing investigation, calling the progress “good,” but gave no note of when investors could expect the findings to be announced.

The unsolicited Green Growth Brand takeover

Neufeld quickly moved on to the next bone of contention. The unsolicited Green Growth Brand takeover proposal took the pot stock by surprise earlier this month when they low-balled them with an $8.18 per share offer, but Neufeld confirmed that there are no active offers on the company.

“Given the hostile nature of this proposal, our Board of Directors has established an independent committee of directors to consider proposals and any formal offers received. As we have stated, the independent committee is comprised of directors with no relationship directly or indirectly to Green Growth Brands,” Neufeld explained, quelling further questions.

[Neufeld out as Aphria posts middling Q2 financial report]

Unable to ask about the short-seller allegations or the takeover bid, investors and analysts posited questions targeted at Aphria’s production and new product capabilities instead. The pot stock was focused on “aggressive” build-outs of new production facilities and automation processes this year to prepare for the legalization of extracts, Neufeld explained. That would bring their production to over 250,000 kilograms of cannabis per year. What stands in the way is Health Canada’s slow response rate to license applications. The team at Aphria concedes that the industry as a whole was unprepared for the “onslaught” or applications, but as of Friday morning, Health Canada had yet to visit and inspect the newly built Parts IV and V of the Aphria One facility. Further delays could put a dent in the pot stock’s plans for new products, but the executive team remains confident.

“We are confident that Health Canada will eventually move our file through the system…[and] by the end of 2019, our run rate will be at or exceeding 255,000 kilos annualized,” Neufeld clarified on the conference call.

Choosing to focus on the positive growth and revenue the company saw this quarter, Aphria executives may have diverted attention from the more negative headlines for now. But investors deserve more than passing comments. Unfortunately, until the independent committees finish their perspective investigations, cannabis investors will have to wait to find the answers they seek.

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