Aphria Continues International Push With Paraguay Despite Criticism

Aphria Inc.  (TSX: APHA) (NYSE: APHA) continues to forge ahead with its international expansion despite coming under fire from a short seller recently. Recently, Hindenburg Investment Research and Quintessential Capital Management released their short report on the company and questioned some of Aphria’s overseas investments causing the stock to plunge and triggering price target reductions by analysts.

On Wednesday, Aphria said it signed a Letter of Intent with Insumos Medicos S.A.  a Paraguayan pharmaceutical manufacturing, import, and distribution company, to enter into an exclusive supply and distribution agreement to provide medical cannabis in Paraguay.

“Latin America continues to represent an important growth opportunity within the global medical cannabis industry, and we are excited to be among the first to enter the rapidly emerging market in Paraguay,” said Jakob Ripshtein, President of Aphria. “Our strategic partner, Insumos, is well-positioned to establish a leading presence for the Company’s products throughout the country. Aphria will continue to expand its footprint in the most strategic markets in Latin America and around the world through its diversified approach to innovation, partnerships, and expansion.”

According to Aphria, Insumos is a distributor of pharmaceuticals to hospitals within Paraguay. Insumos has the network, relationships, and reach to bring Aphria’s products to patients in need across the country. As part of the proposed agreement, Insumos will undertake the registration of Aphria’s products with Paraguay’s Ministry of Public Health and Social Welfare and appropriate licensing for the import of medical cannabis.

The company said that once the deal is closed Paraguay will become the third market in Latin America, following Argentina and Colombia in which Aphria products will be distributed.

Short Seller Response

With regards to the short seller report, Aphria said in a statement, “Investors should exercise caution in relying on the misrepresentations and distortions contained in the report and recognize that, by their own admission, Hindenburg Research “…stands to realize significant gains in the event that the price of any stock covered herein declines.”

The company went on to add, “The report makes reference to the Company’s LATAM acquisition which closed on September 27, 2018. In connection with this transaction, the Board of Directors of Aphria confirmed that it received financial advice and a fairness opinion from a reputable firm that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view to Aphria and its shareholders.”

LATAM Defence

Aphria also fired back with regards to the points that Hindenburg made about the LATAM investments. The company said that its Board of Directors received financial advice and a fairness opinion from Cormark Securities Inc., the company’s independent and qualified financial advisor, which said the transaction was fair, from a financial point of view to Aphria. Aphria also said that it believes that the purchase price paid under the transaction was comparable with similar Latin America acquisitions by other large-cap, Canadian licensed producers.

The company also said that it retained counsel in each jurisdiction that completed extensive legal due diligence on the assets, licenses and businesses in each jurisdiction. Aphria said it sent executives to Colombia, Argentina, Jamaica, and Brazil to conduct due diligence regarding the assets to be acquired which included management meetings. Plus the company said it made site visits in each country and met with local authorized representatives.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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