Aphria Bombshell – Stock in leading Canadian cannabis producer Aphria was taking a nosedive Monday, as the company denied allegations by a short seller who said it had spent more than $200 million to acquire overseas companies of little value that were previously owned by Aphria insiders.
In a presentation at a short-selling conference Monday morning in New York, hedge fund manager Gabriel Grego said his visits to the sites of three Aphria acquisitions in Jamaica, Colombia, and Argentina showed abandoned properties or tiny entities that Aphria trumpeted as its entries into those national markets. Grego urged attendees of the KASE Learning Shorting Conference in New York to sell Aphria’s NYSE-listed stock (ticker: APHA).
Valued on the New York exchange at $2 billion, Aphria has been one of the darlings of Canada’s cannabis industry. Like many of its marijuana peers, Aphria has enjoyed a stock market capitalization that’s nearly 100-times its trailing 12-month sales. Aphria stock closed down more than 23% on Monday, to $6.05 per share. Pre-market trading was halted on Tuesday morning as the company said it “unequivocally stands behind” acquisitions criticized by Grego. The stock was down another 19% in mid-morning trading on Tuesday, to $4.91 per share.
More than 35 million shares changed hands on Monday, more than 13 times the recent average daily volume.
“We believe something very sinister may be happening with this company,” said Grego, who runs the hedge fund firm Quintessential Capital Management. “We believe insiders shop around emerging countries and buy worthless assets for themselves.” The insiders then sell the entities at marked-up prices to Aphria, Grego claimed. The idea for his Aphria short, Grego said, came from researcher Nathan Anderson, who published his own report on Aphria Monday morning on SeekingAlpha, under the moniker Hindenburg Investment Research.
“Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory,” Aphria told Barron’s in a statement. “The company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital.”
Grego said companies bought by Aphria in Jamaica, Colombia, and Argentina had previously been owned by entities associated with Andy DeFrancesco, a Canadian financier who has described himself on his website as an Aphria founder (mention of the company was recently deleted). His longtime investment banking firm is called Delavaco. Aphria’s acquisitions in each of the three countries originally had the name Delavaco, according to corporate records that Grego showed.
In an interview with Barron’s, DeFrancesco confirmed that he had assembled the overseas assets that Aphria bought, but noted that the deals had passed fairness valuations by lawyers and investment bankers. While he was a founding investor in Aphria, DeFrancesco says he is not now a salaried employee or consultant. “To say that these deals were done with any sort of malicious intent is horrible,” said DeFrancesco.
In his slides Monday morning, Grego presented public records showing that DeFrancesco works out of a Florida office property that he co-manages with Barry Honig, a controversial stock promoter that the U.S. Securities and Exchange Commission charged in May with running a $27 million stock manipulation scheme—charges that Honig is fighting. SEC filings show that DeFrancesco’s wife Catherine was a substantial backer of Honig companies like Riot Blockchain (RIOT).
DeFrancesco told Barron’s that the Riot investment in his wife’s name was his own doing and has been a money-loser. “Guys who put companies together come across each other and co-invest,” he said of Honig. Honig had no involvement in the overseas entities acquired by Aphria, said DeFrancesco, nor did DeFrancesco have involvement in the Honig deals being challenged in the SEC’s suit.
Honig has not returned requests for comment on the SEC charges.
Grego said Monday morning that he recently visited the registered address of a Jamaican company named Marigold, which Aphria bought for 145 million Canadian dollars. As shown in his photos, the rooms were derelict. The property has been repossessed by lender CIBC, he added. Aphria had bought Marigold from another Canadian public company, Scythian Biosciences (SCYB.Canada), that is chaired by Andy DeFrancesco. And before that, according to corporate records displayed by Grego, Scythian had bought Marigold for C$18 million from Delavaco Caribbean Ventures, which was owned by longtime colleagues who worked for DeFrancesco companies for a decade. DeFrancesco’s colleagues had spent a mere $118 for their interest in the business that cost Aphria shareholders C$145 million.
Continue Reading at the source below