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  • Ted Ohashi

Issues raised by Hindenburg Research report on Aphria ($APHA)


As we are deep into the cannabis stock market cycle, I feel compelled to issue another note of caution. This is not a time to own potentially problematic stocks, in my opinion. In this case I am referring to Aphria (NYSE: APHA) and some of the issues raised in the Hindenburg Research report “Aphria: A Shell Game With A

Cannabis Business On the Side.” This report raised a number of points that APHA Chief Executive Officer, Vic Neufeld, promised a “…line-by-line, point by point with pictures….” rebuttal. He promised it would come the week of December 10, 2018 and we haven’t seen it yet.


The inability to simply and easily refute some of the findings in the Hindenburg report are probably at the root of Chief Executive Officer Vic Neufeld and co-founder and Vice President of Growing Operations stepping down as announced Friday. The timing is uncertain but is more likely to be sooner rather than later. Both will remain as Directors. The reasons given were the conventional ones such as health and family but I sense the invisible hand from a regulatory agency at work.


The fact that the stock rose 7% on the news tells us investors view the departures as positive. If the stock had dropped 7%, it would have told a much different story.

The first red flag on Aphria came with the Nuuvera transaction almost a year ago. I was asked by a follower on Seeking Alpha what I thought of the transaction and I answered that it was enough to make me avoid investing in the company altogether. After that APHA gradually recovered in price until the current issue arose blindsiding investors as APHA dropped from a high of CAN $24.35 to a low of CAN $4.76 per share. Investors don’t need negative unknowns overhanging their portfolios.


Much of the commentary I have seen so far appears to miss the point. For example, recently a story by Adelle Loiselle for BlackburnNews.com cited a report by Bloomberg News, one of the more prestigious and trustworthy financial news services. She was making the point that Bloomberg casts doubt on an investigative report on Aphria (the Hindenburg report). Loiselle says that report pointed out a $145 million Jamaican acquisition by APHA was an abandoned building. In fact, the report said the address given in official government documents as the offices of the acquired company was an abandoned building.


The report did not say a grow operation did not exist. It said they couldn’t find it. The same Bloomberg report is purported to have found a grow operation with 300 plants. Depending on which valuation you accept for the price APHA paid for the Jamaican assets that works out to around $500,000 a plant.


Consider this. Khiron (TSXV: KHRN) has 5,000 to 6,000 plants in the ground right now which is 25% to 50% more than Bloomberg says Marigold Projects, the Jamaican entity APHA acquired, had in September when it paid $145 million for them. And KHRN has substantial other assets that are generating over $10 million in sales as we speak. I know I would rather own KHRN.


But I digress. We are talking about APHA. Here is what matters to me. The Hindenburg report identified over a dozen matters of fact that appear APHA reported incorrectly or in a very misleading way, for example:

  1. APHA claimed Marigold Projects leased unit 51 at a particular address as an “herb house.” At the address given, unit 51 does not exist.

  2. The medical doctor listed as a Director of the Jamaican company denies in writing ever being a Director of the company.

  3. The genetic scientist is not known to anyone at the residential address provided to government and there is no evidence found that such a scientist even exists.

Clearly questions such as these are difficult to refute as the issues are fairly black and white.


Together with the other information we have stemming back to Nuuvera, I see Aphria as company with management that has created an inappropriate corporate culture. Allegations such as these are like cockroaches. If you see one, you know there are more you just haven’t seen yet. So we’ve had two red flags on APHA in the past year and now two senior members of management are stepping down.


Finally, just a quick word on the Green Growth Brands (CSE: GGB) (OTCQB: GGBXF) “hostile” offer for Aphria.

  1. I am astonished that the investment community would even consider this a serious offer. GGB did not exist a year ago and was not listed and trading until November 13, 2018 (around two months ago) and on the U.S. OTC market on December 20, 2018 (less than one month ago).

  2. Again, there are these links between GGB and APHA that could be explainable except they keep occurring over and over.

  3. I find APHA’s response that GGB’s offer is too low as disingenuous and probably made in the hope that it will elicit higher offers. A company like GGB has had little opportunity to build any value and their offer is paper for paper (shares for shares).

  4. Speaking of other offers, the silence is deafening. Sometimes the market tells you more by what doesn’t happen than what does.


Conclusion: my feeling about Aphria (NYSE: APHA) (TSX: APHA) hasn’t changed since the Aphria/Nuuvera incident. I would stay away. Far away. Nobody needs all the distractions and baggage. Neufeld and Cacciavillani stepping aside probably helps but it is the corporate culture that must change and that will take longer. I feel the same about related companies such as Liberty Health Sciences (CSE: LHS) and Green Growth Brands (CSE: GGB).


If you want a Canadian LP, I believe you will be better off with Canopy Growth (NYSE: CGC) or Organigram (TSXV: OGI). If you want a high growth cannabis opportunity, pick 1933 Industries (CSE: TGIF), Khiron Life Sciences (TSXV: KHRN) or Sunniva (CSE: SNN).

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