Aphria review identifies ‘conflicting interests’ in Latin American deals
A special committee appointed to review short-seller allegations against licensed producer Aphria Inc. has concluded the company’s Latin American acquisitions in question were purchased at prices “within an acceptable range as compared to similar acquisitions by competitors,” according to a news release on the report issued by the company on Friday.
The committee did, however note that the value of purchase was on the higher-end, and that going forward, Aphria will “assess the carrying value of the acquired assets.”
The special committee also identified “conflicting interests” in the acquisition that it says were “not fully disclosed to the Board at that time.”
Short-sellers Quintessential Capital Management and Hindenburg Research accused the company last December of overpaying for its Latin American assets in Colombia, Argentina and Jamaica, through a series of transactions that allegedly personally benefited key company insiders, including departing CEO Vic Neufeld.
The accusations triggered an investor sell-off of Aphria stock, and a management shakeup that included the departure of CEO Vic Neufeld and co-founder Cole Cacciavillani.
The independent review issued Friday also announced the departure of another company founder John Cervini. Cervini will stay on in a “non-executive operational capacity” at the company, according to the release.
“We applaud the independent committee for taking this matter seriously and for making significant changes to the company’s board and governance policies. The review largely corroborated our findings that acquisition prices were high and that multiple insiders had undisclosed conflicts of interest,” said a joint statement by Gabriel Grego, founder of Quintessential Capital Management and Nate Anderson, founder of Hindenburg Research.
“We hope the company can turn a new leaf going forward,” they added.
The committee’s report called on Aphria to strengthen its corporate governance structure to manage potential conflicts of interest including “disclosure of all direct or indirect ownership interests on a regular basis.”
Furthermore, the report specifically noted the company’s reliance on independent experts and advisers, and recommended that Aphria “confirm independence and qualifications of external experts and advisers” prior to engaging in a transaction.
A substantial part of the short seller report targeting Aphria back in December focused on the role of private equity investor and chairman of American cannabis company Sol Global Investments Corp. (formerly known as Scythian Biosicences Corp.), Andy DeFrancesco, who acted as an adviser to Aphria’s management team on the Latin American acquisition.
Short sellers allege that DeFrancesco was at the centre of orchestrating a scheme to mark up the price of the Latin American assets, through the creation of multiple shell companies tied to him. DeFrancesco has consistently disputed the characterization of his role in those transactions and his ties to Aphria.
“Although I was not part of Aphria at the time of the LATAM acquisition, the Special Committee’s findings give me and the Board full confidence that it was executed at an acceptable value and is consistent with the Company’s international growth strategy,” said Irwin Simon, Aphria’s independent chairman.
Simon and Aphria’s president Jakob Ripshtein will remain at the helm of the company until the board decides on a permanent CEO, said the release.
Aphria did not respond to a request for comment.
The company’s stock jumped on news of the report. It closed at US$9.60, up 5.6 per cent on the New York Stock Exchange.