Trades involving shares of Canadian marijuana company Aphria are currently halted after a scathing report was published yesterday. In particular, the report claims that Aphria is “part of a scheme” involving a number of questionable practices. In the immediate aftermath of the report, Aphria stock prices plummeted, setting the stage for this morning’s halt.
Aphria Trades Halted Early This Morning
Yesterday, Hindenburg Research published a report titled “Aphria: A Shell Game with a Cannabis Business on the Side.” The report quickly blew up and gathered significant attention.
So much so, in fact, that Aphria’s stock prices almost immediately began to fall. By the end of the day, Aphria shares had reportedly dropped by 23.42 percent.
And the free fall continued earlier this morning. According to iWatch Markets, Aphria shares fell another 11.05 percent in the early hours of this morning. Finally, the stock was put on halt in the pre-market hours.
Aphria Accused of Being a “Shell Game with a Cannabis Business on the Side”
Hindenburg Research’s report quickly raised alarm throughout the market. In particular, the report claimed that Aphria operates largely as a “shell game,” and that the company is involved with a number of shady moves.
For starters, the report said that “Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.”
From there, the report talks about a number of ways in which Aphria reportedly does this. For one, Hindenburg Research claims that Aphria has made a number of questionable acquisitions.
These allegedly include a $145 million acquisition of a company in Jamaica. According to Hindenburg, on the ground researchers said that the company purchased by Aphria is actually “an abandoned building that was sold off by the bank earlier this year.”
Similarly, the report said that Aphria recently spent $50 million to buy a company in Argentina. According to Hindenburg, the company was touted as bringing in $11 million in sales in 2017, but it actually only made $430,000 in revenue.
In addition to questioning the validity of Aphria’s acquisitions, the Hindenburg report also claims that Aphria if financing these purchases through “copious and dilutive share issuance.” The end result of all these practices, according to Hindenburg Research, is a huge re-routing of company funds.
“Aphria has diverted upwards of C$700m via such transactions, or about 50% of Aphria’s total net assets,” Hindenburg researchers concluded.
And as for weed, the report was equally scathing. It claimed that Aphria produces low-quality product. Further, Hindenburg describes Aphria’s facilities as “infested with bugs, stricken with mold, and having failed audit inspections.”
Aphria Fights Back
In the midst of plummeting stock prices, Aphria published a press release responding to the Hindenburg report. The company used the release to defend itself against the report’s claims.
In the release, Aphria calls the report “a malicious and self-serving attempt to profit by manipulating Aphria’s stock price at the expense of Aphria’s shareholders.”
Aphria further claims that Hindenburg Research has a financial incentive to tear down the value of Aphria stocks.
As of now, Aphria trades remain halted. Currently, it is reportedly in a “T1” halt. Importantly, this means that additional news and information is pending. Basically, it means that further clarification is needed before regular trading can resume.