Aphria is moving ahead, but questions remain.
By Ian Bezek, InvestorPlace Contributor Apr 22, 2019, 10:38 am EDT
Even in a space with as much excitement as marijuana stocks, Aphria (NYSE:APHA) stood out for having as much drama as a cable TV show. If you’re a trader, APHA stock has been a dream lately. The stock rocketed from $8 to $16 in a month last summer. It then lost as much as 75% of its value, plummeting to $4, after a series of short seller reports. Since then, the stock has bounced 150% off the lows to return to the $10 level, before earnings sent it falling once more.
After all the excitement, what’s next for APHA stock? And have the company’s recent moves made it investable again, or is Aphria only appropriate for the most steel-nerved traders?
Fallout From the Bearish Short Seller’s Reports
A few months ago, short sellers hit APHA stock with heavy fire. Bearish analysts published reports suggested that Aphria’s management had engaged in unscrupulous behavior.
The short sellers suggested that Aphria was engaged in all sorts of questionable if not worse activity. The short sellers said that the company had bought phantom assets in Latin America, engaged in various double-dealing and related party transactions, and numerous other red flags.
Aphria’s board of directors engaged an independent special committee to investigate the accusations. The special committee found some troubling factors, but its results also exonerated the company in various ways. Arguably the most important finding was that the committee confirmed that Aphria’s Latin American assets in fact exist and are progressing toward commercial activity.
The committee suggested that Aphria paid near the top end of a reasonable price range for the assets, but that there is a real business there, unlike the short seller’s reports which had claimed these transactions were largely imaginary.
New Management for APHA Stock
However, Aphria wasn’t blameless either. The board disclosed that: “it appears that certain of the non-independent directors of the Company had conflicting interests in the Acquisition that were not fully disclosed to the Board.”
Probably in conjunction with that, Aphria has seen major management changes. Former Aphria CEO Vic Neufeld has stepped down, as well as Co-founder Cole Cacciavillani. Neufeld, in particular, was implicated in several of the alleged misdeeds that the short sellers identified.
In his place, Aphria has appointed an interim CEO. Irwin Simon is now in charge, at least for the time being. Simon led Hain Celestial (NASDAQ:HAIN) for more than two decades, helping that company take a dominant position in the natural and organic foods space. While it is obviously a weak spot for Aphria not to have a permanent CEO in place yet, Simon seems to have capable hands to manage the company while it recovers from the reputational blows it suffered recently.
Aphria Has a Rough Earnings Report
As William White pointed out, Aphria plummeted on April 15 after an earnings report “with losses per share of 20 Canadian cents. This is a drop from the company’s earnings per share of 8 Canadian cents from the same time last year. It was also bad news for APHA stock by missing analysts’ losses per share estimate of 4.5 Canadian cents for the quarter.”
Revenue was up, but overall sales numbers fell. The market was unimpressed, and the stock is now down around 24% since the report.
Back in December, new upstart cannabis firm Green Growth Brands(OTCMKTS: GGBXF) bid to acquire Aphria. This was a highly unusual deal for several reasons. Among them, Green Growth brands itself had just gone public as the merger of several other firms. Additionally, Aphria had a significantly larger market cap than Green Growth, making it a rather odd target for a takeover offer.
After the earnings tumble, Green Growth stepped away from their takeover attempt. It may be good for Aphria that another element of uncertainty is gone, but it’s hardly unequivocal good news overall.
APHA Stock Verdict
It’s good that Aphria has cleaned house. That was a necessary and important first step in recovering the market’s trust in Aphria going forward. But there’s still a lot to be uncertain of.
Particularly in a market where so many of the big leaders in the space have deals with credible partners, it’s easy to take a pass on APHA stock. Cronos (NASDAQ: CRON) has Altria (NYSE: MO) while Canopy Growth (NYSE: CGC) has partnered with Constellation (NYSE: STZ). Meanwhile, Aurora (NYSE: ACB) doesn’t have a major partner yet, but its management team hasn’t given us any big reasons to doubt its credibility either.
The marijuana stock sector is the Wild West right now. Many of the companies out there are going to crash and burn in the coming years. Aphria’s efforts to clean up their act are appreciated. But in such a risky sector, at least for the time being, it’s advisable to stick to more trustworthy leaders in the cannabis space.
At the time of this writing, Ian Bezek owned MO stock. You can reach him on Twitter at @irbezek.