Aphria: A Shell Game With A Cannabis Business On The Side
Dec. 3, 2018 8:40 AM ET|
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About: Aphria Inc. (APHA), Includes: BKDCF, MSRT, RIOT, SOLCF
Hindenburg Investment Research
Hindenburg Investment Research
Activist investor, value, long/short equity
Hindenburg Research
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Summary
Aphria’s recent C$280m Latin American acquisitions raise major red flags. Our extensive on-the-ground research shows that the transactions appear to be largely worthless.
Example: The official registered office of Aphria’s C$145m Jamaican acquisition is an abandoned building that was sold off by the bank earlier this year.
Example: Aphria’s C$50m Argentine acquisition publicly boasted sales of US$11m in 2017. A worker at the company, however, affirmed that 2017 revenue was only US$430k.
Documents show that Aphria insiders were likely undisclosed beneficiaries of the deals. We estimate Aphria has diverted upwards of C$700m via such transactions, or ~50% of Aphria’s total net assets.
Aphria consistently generates negative cash, and its cannabis seems to be of low quality. Interviews with sources describe facilities infested with bugs, stricken with mold, and having failed audit inspections.
Background
Any time an exciting new industry draws widespread attention it also draws retail capital, which in turn can draw unscrupulous actors. This is not a story about the cannabis industry and its commercial potential, nor is it a story about valuations and competitive marketplace dynamics. This is simply about one of the larger companies in the industry that appears to have diverted a tremendous amount of money toward the private interests of its insiders at the direct expense of its public shareholders.