Aphria Inc (fka APHA)

[swingingRichard]

$5.31 pre-market. Here comes the hammer.
I wonder how many of them are actually involved. It would be interesting to see their legal team quit first.

Stock in leading Canadian cannabis producer Aphria (APHA) was taking a nosedive Monday, as the company denied allegations by a short seller who said it had spent more than $200 million to acquire overseas companies of little value that were previously owned by Aphria (APHA) insiders.

In a presentation at a short-selling conference Monday morning in New York, hedge fund manager Gabriel Grego said his visits to the sites of three Aphria (APHA) acquisitions in Jamaica, Colombia, and Argentina showed abandoned properties or tiny entities that Aphria (APHA) trumpeted as its entries into those national markets. Grego urged attendees of the KASE Learning Shorting Conference in New York to sell Aphria's (APHA) NYSE-listed stock .

Valued on the New York exchange at $2 billion, Aphria (APHA) has been one of darlings of the Canada's cannabis industry. Like many of its marijuana peers, Aphria (APHA) has enjoyed a stock market capitalization that's nearly 100-times its trailing 12-month sales. Aphria (APHA) stock was down 26% at $5.84 in Monday afternoon trading. Nearly 30 million shares changed hands, ten times the recent average daily volume.

"We believe something very sinister may be happening with this company," said Grego, who runs the hedge fund firm Quintessential Capital Management. "We believe insiders shop around emerging countries and buy worthless assets for themselves." The insiders then sell the entities at marked-up prices to Aphria (APHA), Grego claimed. The idea for his Aphria (APHA) short, Grego said, came from researcher Nathan Anderson, who published his own report on Aphria (APHA) Monday morning on SeekingAlpha, under the moniker Hindenburg Investment Research.

"Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory," Aphria (APHA) told Barron's in a statement. "The company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital."

Grego said companies bought by Aphria (APHA) in Jamaica, Colombia, and Argentina had previously been owned by entities associated with Andy DeFrancesco, a Canadian financier who has described himself on his website as an Aphria (APHA) founder (mention of the company was recently deleted). His longtime investment banking firm is called Delavaco. Aphria's (APHA) acquisitions in each of the three countries originally had the name Delavaco, according to corporate records that Grego showed.

In an interview with Barron's, DeFrancesco confirmed that he had assembled the overseas assets that Aphria (APHA) bought, but noted that the deals had passed fairness valuations by lawyers and investment bankers. While he was a founding investor in Aphria (APHA), DeFrancesco says he is not now a salaried employee or consultant. "To say that these deals were done with any sort of malicious intent is horrible," said DeFrancesco.

In his slides Monday morning, Grego presented public records showing that DeFrancesco works out of a Florida office property that he co-manages with Barry Honig, a controversial stock promoter that the U.S. Securities and Exchange Commission charged in May with running a $27 million stock manipulation scheme -- charges that Honig is fighting. SEC filings show that DeFrancesco's wife Catherine was a substantial backer of Honig companies like Riot Blockchain (RIOT).

DeFrancesco told Barron's that the Riot investment in his wife's name was his own doing and has been a money-loser. "Guys who put companies together come across each other and co-invest," he said of Honig. Honig had no involvement in the overseas entities acquired by Aphria (APHA), said DeFrancesco, nor did DeFrancesco have involvement in the Honig deals being challenged in the SEC's suit.

Honig has not returned requests for comment on the SEC charges.

Grego said Monday morning that he recently visited the registered address of a Jamaican company named Marigold, which Aphria (APHA) bought for 145 million Canadian dollars. As shown in his photos, the rooms were derelict. The property has been repossessed by lender CIBC, he added. Aphria (APHA) had bought Marigold from another Canadian public company, Scythian Biosciences (SCYB.Canada), that is chaired by Andy DeFrancesco. And before that, according to corporate records displayed by Grego, Scythian had bought Marigold for C$18 million from Delavaco Caribbean Ventures, which was owned by longtime colleagues who worked for DeFrancesco companies for a decade. DeFrancesco's colleagues had spent a mere $118 for their interest in the business that cost Aphria (APHA) shareholders C$145 million.

Read more: Marijuana Stocks Are the New Bitcoin

Scythian recently changed its name to SOL Global Investments, with the new Canadian ticker "SOL." Speaking to Barron's along with DeFrancesco, SOL's chief executive Brady Cobb reiterated that the company's deals with Aphria (APHA) had been vetted by lawyers and investment bankers.

In his presentation, Grego claimed that Aphria (APHA) followed a similar process in purchasing DeFrancesco-associated assets in Colombia and Argentina. Aphria (APHA) bought a Colombian cannabis entity this year from DeFrancesco's Scythian for C$ 84 million. Months before, Grego said, Scythian had paid C$40 million for the Colombian outfit, which was called MMJ Colombia Partners. A few months earlier, according to Grego, it had been called Delavaco Colombia Partners.

Grego then displayed a March Instagram post by Andy DeFranceso in which the financier showed himself in a pharmacy he said he'd just bought in Buenos Aires. Grego then showed a similar-looking photo from what Grego said was his own visit to the same pharmacy. Aphria (APHA) purchased the pharmacy from DeFranceso's investment banking firm Delavaco for C$50 million, according to records presented by Grego.

"I'd like to know what's wrong with that?" asked DeFrancesco, in confirming that he assembled the overseas assets, before their sale to Scythian, and then Aphria (APHA). He has done the same thing for years in the mining industry, as well as the oil and gas sector. "That is the opportunity I took in the cannabis space," he said. "I've been the one doing it on the ground, living on an airplane, spending millions of dollars of my personal money."

DeFrancesco has been richly rewarded, said shortseller Grego. "He just buys a pharmacy for himself," said Grego, " and sells it for $50 million to Aphria (APHA)."

The hashtag on DeFrancesco's Instagram post: "#GreedIsGood."