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Aphria shares plummet as short-sellers have investors doubting Vic Neufeld

By Alexis Grace
Dec 05, 2018

Gabriel Grego, founder of the hedge fund Quintessential Capital Management, and Nate Anderson, founder of Hindenburg Research slammed Aphria Inc. (NYSE:APHA) (TSX:APHA) at the Kase Learning Short Selling Conference in New York, leading to significant price depreciation during Monday’s trading session.

The Ontario-based medical marijuana producer and seller saw stock prices fall 25 percent on Tuesday after closing down 23.42 percent Monday, with its value having been cut by more than half this year.

Aphria’s extreme plummet was exacerbated by Grego holding a large short position on the stock. The circumstances surrounding the situation have caused shareholders, law firms, and Aphria management to question the motives behind Grego’s strongly pessimistic statements during the conference given his hedge fund’s short position on the stock. On the other hand, Grego and Anderson may be at the forefront of uncovering Aphria’s exact financial ailments.

Grego presents a grim outlook for Aphria

Grego called Aphria “The Black Hole” at the conference because he feels there is evidence of the company contriving a “scheme to funnel money from retail investors into the pocket of shareholders” through large, overpriced acquisitions volume. He mentioned the company’s over CA$700 million ($526.74 million) spent on acquisitions in the past year in companies he deemed as being “almost worthless value” with little or no sales.

[US Tax Court rules against use of standard deductions for legal cannabis industry]

Grego claimed to have evidence of a conspiracy between the insiders of Aphria and within companies they have acquired, saying there is “something sinister happening in this company.”

It’s not the first time Grego has made strong claims about a company’s fraudulent practices. Back in May at another Kase Learning Conference, Grego pitched a short of the Greek jewelry and watch company Folli Follie, which trades on the Athens Exchange. The presentation accurately exposed the company as a fraud and led to the stock falling 70 percent until trading was subsequently halted. These findings might have given Grego enough credit to support why traders took his Aphria claims so seriously Monday.

Aphria fights back

Still, Aphria did all they could to discredit the accuracy of Grego’s statements, claiming the presentation was done to manipulate the stock price to yield profits selfishly.

In response to a horrendous day for Aphria’s on the market, the company released a statement expressing their viewpoint on Grego’s reports. They stated the presentation was “a malicious and self-serving attempt to profit by manipulating Aphria's stock price at the expense of Aphria's shareholders.”

[Marijuana stocks weekend investor roundup: Analysis of the week's most important events in the cannabis industry (November 30)]

Management also said in a statement to Yahoo! Finance that “Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory. The Company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital.”

Sharks circle the waters

Following the giant losses Monday, law firms began to pounce on any opportunities that might arise if Aphria has in fact violated federal securities laws or done anything else unlawful. It took only 24 hours for notices to appear in financial pages across the U.S. and Canada, although investors should be wary, as it’s part of the typical cycle of a short attack on any company, cannabis or not.

While the sharks drool, hoping for an opportunity, those with cooler heads remain a bit more positive about the situation. PotNetwork contributor and Grizzle reporter Scott Willis noted earlier this week that the most serious of the allegations against Aphria is, at most, an issue for Jamaican regulators.

[Seven-story building dedicated to cannabis companies to open in Los Angeles]

“Aphria is a company with $314 million of cash in the bank and the third largest revenue generation of any cannabis operator in Canada,” wrote Willis of Canada’s third-largest Licensed Producer. “Aphria will be harvesting 255,000 kg of cannabis and generating $300 million of revenue ($74 million EBITDA) a quarter by this time next year.”

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