Shares in battered Canadian cannabis company Aphria seesawed Wednesday after the company that sold them assets a short seller says are worthless defended the transaction.
The stock has been in free fall ever since a prominent short seller said on Monday that the company’s recent series of acquisitions in Latin America and the Caribbean are essentially worthless.
SOL Global Investments Corp., the company that sold Aphria various cannabis holdings in Jamaica, Argentina and Colombia, issued a statement on Wednesday saying it was “satisfied with the outcome of the transaction,” and touted the quality of the assets in question.
“These emerging market licenses represent some of the most significant growth opportunities in the global cannabis and CBD [cannabidiol] marketplaces,” chief executive officer Brady Cobb said.
At a short seller’s conference in New York on Monday, Gabriel Grego of Quintessential Capital Management called Aphria “a black hole” for investors’ money and insinuated the assets Aphria bought did nothing but enrich insiders.
Watch Grego’s video presentation here:
Cobb said the short sellers “are financially invested in destroying the stock prices of SOL Global and other cannabis companies by publicizing false and/or purposely misleading information to apply negative pressure to stock prices.”
Short sellers make money by betting against certain stocks. They do so by borrowing shares in the companies from other investors, selling them, pocketing the profits and then replacing the shares they borrowed at a lower price later on.
“Our company will not engage in a back-and-forth with these bad-faith actors at this time,” Cobb said, encouraging investors to take a close look at the company’s financial statements for themselves.
Investment analysts who cover the company have been digesting the story as it unfolds, and so far most have maintained confidence in the company — even if it is waning a little.
“The report also alleges that Aphria insiders held undisclosed economic interests in financing vehicles prior to being acquired,” Canaccord analyst Matt Bottomley said of the story on Tuesday.
“The company has categorically denied these allegations to us. While we have no way to assess the validity of the claims, even after discounting our valuation to reflect higher risk, we still see good value at current levels.”
Bottomley has a target price of $18 on the shares — meaning that’s what he thinks the stock will be trading at in the next 12 months. That’s three times its current level.
Aphria shares were falling again in premarket trading on Wednesday, before rallying when the SOL statement came out at 9:30 a.m. Later on in the morning, the shares were essentially flat compared with Tuesday’s close, changing hands at $5.95 a share.
“We believe that management’s credibility may have been impacted by the allegations raised in this report,” GMP analyst Martin Landry said. “It is unclear at this point how the company will re-establish trust with investors.”
Landry had a $22 target on the shares prior to the short seller’s report, but has now put that target “under review.”