A look at cannabis producer Aphria Inc.’s stock since it released its annual report suggests something of a turnaround.
After a surprise profit, Aphria’s /zigman2/quotes/207425803/composite APHA +1.89% /zigman2/quotes/205566616/delayed CA:APHA +1.59% U.S.-traded shares rallied 40% in a single day, adding over half a billion in market value to the name. It has since retreated, shedding $200 million in just over a week’s worth of trading.
Aphria appears as if it’s running as it should. The way the freshly installed chief executive tells it, one reason for the company’s success is that its brands are resonating with customers: high potency for a low price gets marijuana into a lot of hands.
“It comes back to being a low-cost producer — from a grow, to a production standpoint,” CEO Irwin Simon told MarketWatch last week. Simon until last year ran Hain Celestial Group Inc. /zigman2/quotes/201324629/composite HAIN +1.18% , a food-oriented consumer packaged goods company which he founded in the 1990s. “You can’t really market your brands here, so how do you get consumers to try them? I want to get the brand in a lot of consumers’ hands.”
Yet Aphria has an ugly history that it has not entirely dispensed with — and will not vanish until October at the earliest. Its C$89 million ($70 million) windfall was a partial result of deal-making designed to enrich insiders at the expense of shareholders on both sides of the border. The new CEO Simon has also asked investors to accept a wildly optimistic projection for Aphria’s ability to sell cannabis. And he has asked investors to take in good faith an adjusted financial figure in lieu of profits that resembles his own history of using adjusted numbers to cut management bonus checks and present results that don’t track with what U.S. regulators demand.
In December, short sellers Hindenburg Research and Quintessential Capital Management made the case that Aphria executives had used a complex set of financial maneuvers to enrich insiders and associates by overpaying for assets held by friendly parties, including a stake in a little-known shell company. Former CEO Vic Neufeld and Co-Founder Cole Cacciavillani stepped down and the company promised an internal investigation by an independent committee and a point-by-point rebuttal of the accusations.
Aphria’s investigation is complete, but the public has not yet seen a rebuttal.
Despite dozens of media reports of the company’s promise , an Aphria spokeswoman denied that the company had promised investors that it would issue a line-by-line rebuttal to the short seller claims. Ex-CEO Neufeld made the promise of a rebuttal and not the company, she said.
As shares were slammed in the wake of the short sellers’ report, a U.S. company that was little more than an idea on a napkin a year ago launched a takeover bid for Aphria. Now known as Green Growth Brands /zigman2/quotes/204912440/delayed GGBXF -17.79% /zigman2/quotes/205269595/delayed CA:GGB +25.00% that company’s failed bid for Aphria battered the stock price in both directions. Green Growth listed on the Canadian Securities Exchange, buying into the shell company Aphria already owned, which has proven lucrative for Aphria, though it’s more difficult to figure out how it benefits shareholders.
In April, Aphria executives said that in conjunction with terminating the Green Growth takeover, Aphria would receive C$89 million ($70 million) for its shares through an investment vehicle that Aphria has a stake in, a stake that got more valuable after Green Growth made its takeover bid for Aphria. Aphria disclosed receiving the first C$50 million in April and agreed to take C$39 million due in the fall.
But it was hard to tell exactly how that payment contributed because Aphria — like several other Canadian companies and U.S. businesses traded over-the-counter — did not include a full set of quarterly financial tables with its year-end results released earlier this month. The company told MarketWatch that it did not use the cash to juice its fourth-quarter profits, but rather added the payment to the balance sheet and excluded it from the income statement altogether.
Aphria stock is cross-listed on the New York Stock Exchange, which should lead to greater disclosure than over-the-counter peers. One of the reasons for Aphria’s American listing is the obvious hope it can attract the valuable dollars of U.S. retail investors, but also snag the nearly-impossible-to-attract institutional money that has largely stayed away from the cannabis industry.