Shanna Fuld

About the Author Shanna Fuld

Shanna J. Fuld is a journalist specializing in the cannabis market. Fascinated by the industry's growth, she quickly started making contacts in the cannabis world internationally and loves writing about the nuances of the field. The former NY1er worked as a videographer, assignment editor and writer for the beloved local news channel before joining the TipRanks team.

Aphria (APHA) Stock Plummets After Damning Reports, but Analysts Remain Supportive


Canadian marijuana company Aphria (APHA) has sunk deeper in the red after reports are out detailing shady business deals with Latin American companies. Quintessential Capital Management (QCM) and Hindenburg Research released a report called “Aphria: A Shell Game with a Cannabis Business on the Side,” in which researchers describe their on-the-ground investigators to have uncovered baseless deals and fabricated numbers that ultimately benefited Aphria insiders. QCM says shareholders are being cheated as investors rack up cash from empty ventures and operations abroad.

“Because Aphria generates a minimum amount of sales relative to its market cap, we believe that the uncovering of this alleged scheme, coupled with a massive asset write-off, would have catastrophic consequences for its share price,” reads one of the bullets on the report summary. The research was published on December 3rd, and since then, the prediction has been realized in the company’s stock price.

Another stock is taking a toll — Liberty Health Sciences (LHS), a Floridian medical marijuana pharmaceutical that Aphria owns an ample amount of – is down by 6.46% or about 29% if you calculate the percent drop between Monday’s report release and Friday at market close. Liberty Health Sciences released a statement three days after the report saying the content was not credible. “The Report contains a number of factual errors and outdated information. As cited in the Report’s disclaimers, its authors stand to benefit financially by manipulating Liberty’s stock. Investors should exercise caution in relying on the statements contained in this Report. Liberty takes the unconfirmed allegations contained in the Report very seriously and will provide updates as they relate to this matter in due course. Liberty is committed to good corporate governance and transparency.”

The QCM report estimates at least 50% of Aphria’s C$1.46 billion in net assets have been deflected to investments that are “grossly inflated” — including C$524 million in “worthless” goodwill (as QCM puts it), C$246 million in intangibles, which includes licenses, permits, and “brands” acquired from these dealings, that QCM estimates are inflated by 80%+; and C$86 million in equity investees and long-term investments which researchers believe are “the product of related-party deals and are significantly impaired.” QCM attributes much of the shady business to Andy DeFrancesco, who is an integral investor and founder for Aphria and Scythian (a Latin American biopharma Aphria purchased assets from). The report suggests Scythian operated out of an office and suite where DeFrancesco’s personal private equity firm, Delavaco Group worked prior. Then investigators found all entities in the Latin American deal had been previously named after the Delavaco Group until switched over to “Marigold Acquisitions” (Jamaica), “MMJ Colombia Partners” (Colombia) and “MMJ International Investments” (Argentina). Moreover, researchers found efforts were made to conceal these relationships. When trying to pinpoint what the exact assets were that Aphria was purchasing, QCM visited Kingston, Jamaica and found the building APHA reported buying from Marigold Acquisitions (previously called Delavaco Caribbean Ventures) was virtually unnoticeable from the street and abandoned on the inside. Pictures attached to the report show it had likely been left that way for year:

“Busted doors and ceilings. Holes in the wall. Yellowed newspaper on the floor. Dirt everywhere. Not exactly the cutting-edge operation we’d expect. Marigold’s much-touted managing director, Lloyd Tomlinson, lists the same abandoned property as his personal address. Following our visit, we checked Jamaican real estate records and learned that neither Tomlinson nor Marigold even own the abandoned property anymore. Tomlinson used to be the owner but it was sold off by the mortgage lender in January. Despite this, Marigold and Tomlinson’s recent filings still listed the abandoned property as their current address.”

The report shows photos of the records. QCM also found a leased space for Marigold Assets where there were no employees present during business hours along with a photo of a withered plant in the lobby. Neighbors told investigators they rarely see anyone enter or leave the office suite. There was also a paper sign on the door indicating the company name, rather than a stationary plaque.

Additionally, one of the company’s founding directors signed a document stating she was never on the board (after being approached by investigators). A scientist that was supposed to have been a part of the marijuana company was not found on the web and the company’s plot of land is not approved for growing marijuana. A license to grow marijuana in Kingston costs about $500. The total cost for Aphria’s marijuana venture in Jamaica? C$145 million dollars. That’s some mark-up for investors.

This is just the tip of the iceberg when it comes to this report. Following a C$50 million Argentine acquisition, Aphria reported sales of U.S.$11 million generated from that purchase, while a company employee reported revenue was only U.S.$430,000. A similar situation there – dilapidated factory void of life and two named employees whose LinkedIn profiles say they’re students, with one employee whose LinkedIn profile actually lists him as having laboratory experience. The report lists very similar experiences from Colombia as well, this time the office had a total of five employees, but the farm was void of marijuana plants and the business not fully licensed.

Regardless of the devastating allegations, Canaccord analyst Matt Bottomley remains bullish on APHA stock, with a Buy rating and C$24.50 price target, which suggests over 250% upside from Friday’s closing price.

Bottomley noted, “After acquiring Nuuvera and assets in Latin American, Aphria has exposure in over 10 international markets, which we believe places the company as a leader among Canadian LPs in its international exposure. We believe the German market, in particular, is one of the more attractive European medical cannabis markets to date given its large population base and relatively high pricing through government reimbursement.”

“We continue to believe that Aphria remains one of the more attractive large cap Licensed Producers on its relative valuation, with a CY2020 EV/EBITDA multiple of 12.7x (a significant discount to its most comparable peers at 27.3x) and we would remain buyers of APHA at current levels,” the analyst concluded.

How does Bottomley’s bullish bet weigh in against the Street? It appears the analyst is not the only one enthusiastic on this cannabis oil product maker, with TipRanks analytics demonstrating APHA as a Strong Buy. Out of 11 analysts polled in the last 3 months, 10 are bullish on Aphria stock while only 1 remains bearish. With a return potential of nearly 320%, the stock’s consensus target price stands at $22. (See APHA’s price targets and analyst ratings on TipRanks)

Smarteranalyst reached out to both Aphria and Liberty Health Sciences for comment, but haven’t received word back as of this writing.

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