Marijuana Producer Aphria's CEO Has Called It Quits Amid Allegations by Shortsellers -- Barrons.com BY Dow Jones & Company, Inc. — 11:16 AM ET 01/11/2019 The chief executive of Canadian pot producer Aphria ( APHA Loading... Loading... ) said Friday that he will step down.
Vic Neufeld's retirement announcement came a month after shortsellers alleged that he and other Aphria ( APHA Loading... Loading... ) founders engaged in self-dealing transactions with the big cannabis firm by allegedly selling Latin American entities to the company at steep markups, totaling hundreds of millions of Canadian dollars.
The last five years of building Aphria ( APHA Loading... Loading... ) into a global player have been amazing, Neufeld, 63, said on a conference call Friday morning. "But to be brutally honest," he said, "the journey has also taken a toll on health, family, and personal priorities."
Neufeld and his fellow founder Cole Cacciavillani will step down after Aphria ( APHA Loading... Loading... ) finds successors, then will continue as advisers. "It's business as usual at Aphria ( APHA Loading... Loading... )," Neufeld said, "regardless of the external noises."
"This has nothing to do with the shortsellers' report," Neufeld said. "It was just time."
Investors took the news as marking a bottom for the Aphria ( APHA Loading... Loading... ) stock . On the Nasdaq, where Aphria ( APHA Loading... Loading... ) shares are dual-listed with Toronto's exchange, the stock jumped up 8%, to $7.11 per share. That values the Leamington, Ontario-based firm at $1.8 billion.
Neufeld noted that a special committee of Aphria's ( APHA Loading... Loading... ) board continued to "make good progress" on its investigation of the allegations of impropriety raised at a December investment conference by the hedge fund Quintessential Capital Management and the investment research firm Hindenburg Research. Aphria ( APHA Loading... Loading... ) and Neufeld have said the overseas acquisitions were proper. "Multiple respected journalists and analysts have independently analyzed our disclosures," Neufeld said, " leading them to publicly refute the shortsellers."
Neufeld told listeners that he wouldn't take questions on the controversy, but the very first question on the call came from a bullish Canadian analyst, Oliver Rowe of Scotiabank, who invited the CEO to justify the prices that Aphria ( APHA Loading... Loading... ) paid for its Latin America deals. Neufeld then spoke at length about the value of new cannabis markets like Argentina.
The shorts pronounced their work done. "We welcome the latest executive changes at Aphria ( APHA Loading... Loading... ) which clearly vindicate our short thesis," Quintessential said in a statement. "With a new management team, the company has a chance to a brighter future and we are accordingly moving on to new projects."
Hindenburg declined to comment.
Neufeld also said that another board committee continues to examine a December takeover bid for Aphria ( APHA Loading... Loading... ) announced by a tiny U.S.-based cannabis startup. He reiterated Aphria's ( APHA Loading... Loading... ) earlier view that Green Growth Brands' bid is inadequate.
Aphria's ( APHA Loading... Loading... ) succession surprise came as it announced its results for the quarter ended November 2018 -- the first report by a major producer that includes sales after Canada allowed adult recreational use in October. The company's sales grew nicely, but so did its operating loss.
Revenue in the November quarter was 21.7 million Canadian dollars (or about US$16 million), up 63% sequentially from the July quarter. Although Aphria ( APHA Loading... Loading... ) reported net income of C$55 million, or 22 cents a share, those profits resulted from investment gains -- not weed sales. On its operations, the company lost C$21.6 million. Its cash flow (after some adjustments) was a negative C$6 million. Since its fiscal year began, Aphria's ( APHA Loading... Loading... ) capital spending and its acquisitions have produced negative free cash flow of more than C$180 million.
Of interest as cannabis sales go recreational, the company's gross margins slipped to 47%, from 64% in the July quarter. Aphria ( APHA Loading... Loading... ) said selling prices in the recreational market are lower than those for medical marijuana. While sales volumes are higher, recreational pot averaged a price of C$6.32 per kilogram, compared with C$7.52 for the medical product.
On Friday's call, Aphria ( APHA Loading... Loading... ) said that it will cut its price for medical customers, to match the lower recreational price. Other pot producers are doing likewise, bringing margins down industrywide.
Neufeld and his colleagues acknowledged that Aphria ( APHA Loading... Loading... ) and its other Canadian rivals had stumbled in scaling up production and delivery as the country began adult-use sales. The company says it is awaiting the federal health agency's inspection and license for its big new production facilities.
More price drops lie ahead. Neufeld told callers that the provincial government wholesalers who buy his product want recreational pot prices to drop low enough to take share from the black market. As the industry's production scales up, he predicts that consumers and regulators will enjoy still lower prices, but that successful producers will "own the shelf."
Write to Bill Alpert at william.alpert@barrons.com
(END) Dow Jones Newswires 01-11-19 1116ET Copyright (c) 2019 Dow Jones & Company, Inc.
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