Aphria: Are the Short-Sellers Vindicated?

Aphria (TSX:APHA)(NYSE:APHA) is one of the top cannabis producers in Canada. Shares were down 1.65% in late morning trading on April 25. The stock is still up 34% in 2019 so far.

Aphria stock was hit hard following the release of its fiscal 2019 third-quarter results. Revenue rose over 600% from the prior year and nearly 250% from the previous quarter, but the company still posted a net loss of $108.2 million. This was in large part due to a $50 million impairment charge on its Latin American assets.

Shares tumbled below the $5 mark in late 2018 in response to a short report that took aim at its Latin American acquisitions. Hindenburg Research claimed that the assets were essentially worthless and predicted that Aphria would face complications down the road.

Aphria released a statement condemning the report and defending its recent acquisitions, but the company did see a big shake-up as CEO Vic Neufeld stepped down in January.

Aphria pulled back on its production in the third quarter as it prepares new plants and a significant ramp up in the final quarter of the year.

Other major producers are following the same path, and the competition will be fierce in what is becoming a cramped domestic market. That is why strategic international expansion is so important to the top producers.

Aphria will have to take aim at a smaller market share in the near term but can still recover from this setback. However, value investors should keep an eye out for a more favourable entry point going forward.