Aphria Inc. (TSX:APHA)(NYSE:APHA) was down 20.7% in late morning trading on December 3. Shares are now down 33% month over month.
The stock has been hammered after a report was released by Hindenburg Research, which has alleged that several of its international acquisitions are of dubious value.
Gabriel Grego, founder of Quintessential Capital Management, ran a report with a forensic analyst firm and talked to ground representatives of these recently-acquired companies. One example was its $145-million Jamaican acquisition, which the report claims is an abandoned building which was sold off by the bank earlier in 2018.
It also suggested that its $50 million Argentine acquisition had inflated 2017 revenues of $11 million, reporting on the ground suggests that revenues were under $500,000 in 2017.
The report also alleges that Aphria’s cannabis is of consistently low quality and cast a shadow over the state of its production facilities.
This is a big blow for Aphria to close the year, but as of this writing the management team is reportedly preparing a sharp response. Cannabis stocks have struggled mightily since recreational legalization kicked off on October 17. The global stock selloff exacerbated supply issues and anxiety over inflated valuations.
This dip will likely push Aphria stock into oversold territory, but long-term investors may want to wait out the response from the company’s management before buying on this dip.
Things are expected to brighten up for the big producers in 2019 as supply catches up to demand, but the larger companies are reliant on international expansion for growth going forward.
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