Aphria cleared by third-party investigator
Allegations ‘materially inaccurate’
An independent third-party investigator hired by Florida-based cannabis company Liberty Health Sciences to probe claims of self-dealing made in a short-seller report in December has concluded that the allegations were “materially inaccurate,” according to a press release put out Tuesday by Liberty Health.
In early December, shortseller Hindenburg Research released a series of reports critical of Canadian cannabis company its then-CEO Vic Neufeld and private equity investor Andy DeFrancesco, alleging that Aphria had overpaid for international assets as part of a “scheme” to benefit company insiders.
While the deals at the centre of the short-seller allegations involved another company — then known as Scythian Biosciences — the short sellers also questioned Liberty Health’s conduct in relation to a real estate transaction connected to DeFrancesco and the purchase of Liberty Health stock by Neufeld, who was chairman of Liberty’s board of directors until last month.
Aphria had been a major shareholder in Liberty but was forced to divest its holding entirely in September or risk being de-listed from the Toronto Stock Exchange due to rules barring cannabis firms listed on that exchange from investing in the U.S.
The first allegation involved Liberty Health’s purchase of an entity called 242 Cannabis LLC for US$13.5 million, just six days after 242 Cannabis bought a Florida property for U.S.$6.5 million. The short sellers alleged that the private shell entities that made up 242 Cannabis were registered to DeFrancesco’s spouse.
According to a press release put out by Liberty Health, the third-party report concluded that this particular allegation was misleading to investors because although the vendors of 242 Cannabis had indeed realized a gain from this transaction, Liberty Health itself bought 242 Cannabis for a “price that was below fair market value, resulting in a net benefit to the company.”
DeFrancesco did not respond to a request for comment on the report’s finding.
Hindenburg had also suggested Neufeld had purchased shares in Liberty Health at a significantly discounted price, just days before Aphria announced its investment in the company last summer.
The third-party report, according to Liberty, concluded that the allegation against Neufeld “was not supported by available evidence and appeared to be based upon erroneous filings.”
Neufeld, who remains a member of Aphria’s board, did not respond to a request for comment on the conclusions of Liberty’s third-party report.
Short-seller Nate Anderson of Hindenburg Research told Financial Post in an emailed statement that “despite declaring the report to be inaccurate, Liberty Health Sciences highlighted a total of zero inaccuracies except for the company’s own inaccurate filing. Four directors have since resigned which should speak volumes.”
In the same press release, Liberty Health said it would be embarking upon “strategic changes” to the makeup of its board — the company announced the resignation of John Hick and Ian McKinnon for “personal reasons related to the increased uncertainty regarding crossborder travel into the U.S.”
Hick, a veteran executive of the junior mining industry, and McKinnon, who was involved in the tech industry in the late 1990s and early 2000s, had just joined Liberty’s board in January.
Aphria too, has hired a third-party investigator to look into short-seller allegations against the company