Aphria (APHA) stock tests investor nerves in roller coaster ride following an announcement Thursday from U.S. cannabis company Green Growth Brands (GGB) that it would like to take the Canadian company over. Referred to as a “hostile bid,” the company, which only went public on the Canadian Securities Exchange in November, trusted management would not be welcoming of the proposal and made the offer to shareholders who might be more tempted to swing for a takeover.
The deal boasted each Aphria share would receive 1.5714 shares of Green Growth plus the made-up share price of C$7 each. Thursday the closing price for the stock was C$4.98 on the Canadian Securities Exchange. Atlanta-based investment adviser Cornerstone Investments (CI) is not in favor of this deal and says the bid will not succeed. (To watch CI’s track record, click here)
“[…] we think the bid will temporarily create volatility for both stocks and Green Growth might benefit from more attention, similar to the miraculous uprise of Aurora (OTC:ACB) after its CanniMed bid. However, we would not recommend Green Growth shares due to its extremely overvalued stock and barbarian approach to M&A,” CI explained.
The blogger explains that Green Growth is conveying Aphria shareholders are frustrated and believe the stock should be worth C$7 per share, regardless of the fact that it’s trading at C$4.98 due to the value the market is currently assigning it. CI does note that Green Growth stock grew about 50% “mysteriously” in the last two weeks. The blogger weighs in: “To claim that Green Growth’s own shareholders believe its shares are worth C$7 is beyond unreasonable and almost amusing.”
The investment advisor suggests the numbers don’t actually add up to favor Aphria shareholder. The bid only represents a 3% premium based on its spot price and would end up implying a discount of 20% and 26% to Aphria’s closing price when using the 10-day and 20-day VWAP model for Green Growth. The blogger looked for reasons as to how the stock could have jumped from C$3.36 on Dec. 14 to C$4.98 on Dec. 27. This includes the accrual of 7 retail licenses in Nevada on Dec 6, the acquisition of Just Health, which holds a medical cannabis license in Massachusetts for $3.75 million, a second cultivation site in Nevada for $13 million on Dec 13 and a Nevada dispensary for $15 million. CI these expansions still don’t help account for the 197 million basic shares outstanding. The blogger explains: “Even after including the acquisitions discussed above, we think Green Growth remains a small single state operator with an extremely overvalued stock.”
“We believe that the bid has a near zero chance of success and Green Growth is likely just trying to grab investor attention and inflate share price. Green Growth is a single state operator with a single store operating in Nevada currently. Its stock is extremely overvalued and, in fact, it is the most expensive U.S. cannabis stock among our coverage universe […] Ultimately, we think the bid is going to fail and fade away but Green Growth might benefit from its publicity stunt and the Aphria saga continues,” the blogger concluded.
It is important to note that Aphria was recently in hot water after a short report came out claiming (with documentative evidence) that Aphria was cheating investors by lying about how much overseas assets were costing the company for the Latin American operations. Moreover, the evidence showed photos of many farms and offices that seemed non-functional. This could be a reason Aphria shareholders are open to change.
Can you feel the hostility in the air? TipRanks analytics shows the stock, nevertheless, has a consensus rating of “Moderate Buy” and a consensus price target of $10.50, which shows a near 68% upside to where the stock is currently standing. Out of 11 analysts, 9 are bullish, 1 sidelined and 1 is bearish. (See APHA’s price targets and analyst ratings on TipRanks)