Aphria falls as short-seller labels it ‘black hole’
29% decline could be firm’s biggest one-day drop since going public
Aphria Inc., one of the biggest Canadian pot companies, fell as much 29 per cent in New York after a short-seller said it was a “black hole.”
Gabriel Grego, founder of Quintessential Capital Management, told delegates at a conference in New York Monday that Aphria had diverted funds into inflated investments held by insiders. In a report he ran in conjunction with Hindenburg Research, a forensic analysis firm, Grego said the company, which had a $2 billion (U.S.) market capitalization last week, is worthless. Both Quintessential and Hindenburg are shorting Aphria.
“Our target price for Aphria is zero,” Grego told attendees at the conference.
“Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory,” Tamara Macgregor, Aphria’s vice-president of communications, said in an emailed 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’s Quintessential gained notoriety among short-sellers after targeting Greek retailer Folli Follie in May and saying the company had overstated its store network and revenue. The company rebuffed the allegations but later confirmed that consultants it had hired found revenue at its key Asian unit was almost 90 per cent lower than the reported figures.
Aphria, based in Leamington, Ontario, is the fourth largest cannabis stock by market value and has raised about $700 mil- lion (Canadian) over the past four years. Canada legalized recreational cannabis consumption in October and several other countries are moving toward some form of legalization.
If sustained, the decline in its market value would be the biggest one-day drop since Aphria went public in 2014. Aphria shares traded 19 per cent lower at $6.44 as of 11:39 a.m. in New York, cutting its market value to $1.59 billion (U.S.).
The broader cannabis sector slid on the news, with the Horizons Marijuana Life Sciences Index ETF falling 4.7 per cent in Toronto. Tilray Inc. fell 2.5 per cent, Canopy Growth Corp. lost 4.2 per cent and Aurora Cannabis Inc. retreated 3.6 per cent.
Grego said Aphria engineered a mechanism to siphon off money to companies held by insiders in South America and the Caribbean to the detriment of shareholders, according to the report.