Aphira re­sponds to al­le­ga­tions


TORONTO — A pri­vate eq­uity in­vestor af­fil­i­ated with Aphria Inc., one of Canada’s largest cannabis com­pa­nies, is re­fut­ing al­le­ga­tions by short-sell­ers that he or­ches­trated a scheme to ben­e­fit him­self and Aphria in­sid­ers through that com­pany’s pur­chase of a num­ber of Latin Amer­i­can as­sets.

“The ma­jor­ity of this re­port is in­ac­cu­rate. The num­bers in this re­port are also com­pletely in­ac­cu­rate,” Andy DeFrancesco, the chair­man and chief in­vest­ment of­fi­cer of SOL Global In­vest­ments Corp., said in an in­ter­view.

Shares of Aphria fell nearly 30 per cent on Mon­day af­ter the joint re­port by Quintessen­tial Cap­i­tal Man­age­ment and Hin­den­burg Re­search al­leged, among other things, that as­sets Aphria had ac­quired from SOL for $280 mil­lion in Septem­ber were es­sen­tially “worth­less.”

The shares were down an ad­di­tional 18 per cent or $1.32 at $6.28 in early trad­ing Tues­day.

At a short-sell­ing con­fer­ence in New York on Mon­day, Gabriel Grego of QCM called Aphria a “black hole for share­hold­ers’ money,” ac­cus­ing DeFrancesco of mas­ter­mind­ing a com­pli­cated scheme in­volv­ing shell com­pa­nies to es­sen­tially fun­nel money away from share­hold­ers, and to­ward key com­pany in­sid­ers, in­clud­ing Aphria’s CEO Vic Neufeld.

In an emailed state­ment Mon­day, Leamington, Ont.based Aphria de­nied all al­le­ga­tions made by Quintessen­tial Cap­i­tal, call­ing them “false and defam­a­tory.” The com­pany also said it is pre­par­ing a “com­pre­hen­sive re­sponse” ad­dressed to share­hold­ers and that it is pur­su­ing “all avail­able le­gal op­tions” against Quintessen­tial Cap­i­tal and Hin­den­burg Re­search.

The al­le­ga­tions in the short­seller re­port cen­tre on a trans­ac­tion first an­nounced in July, in which Aphria agreed to buy three Latin Amer­i­can as­sets held by SOL, then known as Scythian Bio­sciences.

The as­sets in­cluded Marigold Projects Ja­maica Ltd., which the com­pany said had ob­tained a cov­eted Tier 3 cul­ti­va­tion li­cence — one of the only li­cences of its kind to pro­vide spa ser­vices us­ing cannabis prod­ucts — as well as an Ar­gen­tinian phar­ma­ceu­ti­cal distrib­u­tor called ABP and a cannabis pro­ducer in Colom­bia called Col­canna.

Grego and his team claim that site vis­its in all three coun­tries raised sig­nif­i­cant ques­tions about the val­ues of the un­der­ly­ing op­er­a­tions.

In search of Marigold’s reg­is­tered of­fice in Ja­maica, for ex­am­ple, the re­port said they found an aban­doned build­ing, one which Marigold’s man­ag­ing di­rec­tor Lloyd Tom­lin­son also lists as his per­sonal ad­dress.

When it came to ABP, the Ar­gen­tinian com­pany which Aphria touted as “a suc­cess­ful phar­ma­ceu­ti­cal im­port and dis­tri­bu­tion com­pany,” Grego pro­vided pho­tos of an ABP fa­cil­ity that ap­peared to just be a small phar­macy in Buenos Aires, “smaller than a con­ven­tional CVS or Rite-Aid.”

In a state­ment re­leased Tues­day morn­ing, Aphria re­it­er­ated its com­mit­ment to the com­pany’s Latin Amer­i­can op­er­a­tions.

“We have nearly 100 em­ploy­ees across the re­gion ded­i­cated to ad­vanc­ing the Com­pany’s busi­ness in­ter­ests, in­clud­ing cul­ti­va­tion, pro­cess­ing, re­search and devel­op­ment, part­ner­ships and con­tin­ued ex­pan­sion.”

With spe­cific re­gard to its Ja­maica op­er­a­tion, Marigold Projects Ltd., Aphria called Marigold’s farm “op­er­a­tional” and said it had “har­vested ap­prox­i­mately 2500 kg of cannabis to date.”

Aphria con­tin­ued to call its Ar­gentina op­er­a­tion, ABP, a “wellestab­lished and suc­cess­ful phar­ma­ceu­ti­cal im­port and dis­tri­bu­tion com­pany,” but did not specif­i­cally ad­dress pic­tures of the phar­macy ref­er­enced by Grego in his re­port.

“Aphria and SOL Global In­vest­ments Corp. (for­merly Scythian Bio­sciences Corp.) are not ‘sis­ter’ com­pa­nies and were not ‘sis­ter’ com­pa­nies at the time the trans­ac­tion was agreed to be­tween the par­ties,” Neufeld said in the state­ment.

To­gether with other mem­bers of the com­pany’s ex­ec­u­tive team, Neufeld said they per­son­ally bought a to­tal of more than $3.1 mil­lion in Aphria shares on Mon­day as a demon­stra­tion of con­fi­dence in the com­pany.

“It is the com­mit­ment of our in­cred­i­ble team and part­ners that has got­ten us to where we are to­day, mak­ing Aphria a global cannabis suc­cess story,” Neufeld said.


Trays of trimmed cannabis are pic­tured at Aphria in Leamington, Ont., on Sept. 19.

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