Shares in Canadian cannabis company Aphria Inc. fell to their lowest level in more than a year on Monday after a short seller published a report alleging the company has wasted hundreds of millions on foreign acquisitions that are essentially worthless.
At a short-selling conference in New York, Gabriel Grego of Quintessential Capital Management outlined his report on the Leamington, Ont.-based company, calling the company a “black hole for shareholders’ money.”
Aphria’s stock plunged both on the Toronto and New York stock exchanges when markets opened on Monday, at one point falling to a new 52-week low of $7.38 per share in Toronto, down 29.8 per cent from Friday’s close of $10.51.
Short sellers make money when stock prices in the companies they target go down. They do so by selling other investors’ shares at current prices, pocketing the profit and replacing the shares they’ve borrowed by buying them for a lower price later on. Recent prominent targets of short sellers include drug company Valeant, and mortgage company Home Capital.
While Grego lays out a number of reasons for why he thinks Aphria is overvalued, his core argument is that he says the company spent $700 million buying up subsidiaries in the Caribbean and South America that don’t add any value to the company.
Quintessential Capital Management alleged Aphria acquired foreign companies at inflated prices in ways that it believes benefited a group of insiders.
“In most instances, the entities acquired by Aphria exhibit little or no sales and operating activity, minimal assets and questionable corporate governance,” he said.
Aphria called Grego’s allegations false and defamatory.
“The company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital,” it said in a statement Monday morning.
Grego has become an influential short seller. His last major target, this summer, was a company called Folli Follie, a Greek jewelry chain that he argued had vastly overstated how much money it was making in China. The company lost three quarters of its value after regulators looked into the company and subsequently halted the stock. It hasn’t traded since.