Fri | Dec 14, 2018

Aphria defends Jamaica, regional ganja investments

Published:Wednesday | December 5, 2018 | 12:00 AMSteven Jackson/Senior Business Reporter

Aphria Inc, a cannabis company based in Canada, is defending its purchase of regional assets, including operations in Jamaica, following claims by outside investors that the assets are largely hollow.

The Jamaican operation, known as Marigold, is led by Lloyd Tomlinson, a third-generation coffee farmer who has entered the ganja market.

Tomlinson referred requests for comment on the allegations to Aphria, which provided a statement calling the report a "malicious and self-serving attempt" to profit by manipulating Aphria's stock price at the expense of the cannabis company's shareholders.

Gabriel Grego of Quintessential Capital Management and Nate Anderson of Hindenburg Research reported that they conducted visits to three regional countries to view the Aphria holdings. In an interview on Seeking Alpha, Grego described Kingston as a place with acceptable levels of danger, which once held the title of most dangerous city in the world. He said the most "shocking discovery" was that the registered address of the Jamaican operations was a dilapidated building that was completely run-down and that it would take months to ready the place for occupation.

Grego also described the provisional cannabis licences in Jamaica as ordinary and something that anyone could get.

The allegations sent Aphria's share price tumbling on the New York Stock Exchange. The stock lost 23 per cent of its value on Tuesday morning and was hovering at around US$4.66. It also tumbled 23.4 per cent on Monday to close at US$6.05 but had lost up to 30 per cent of its value at one point.

Similarly, on the Toronto Stock Exchange in Canada, Aphria dropped 16.5 per cent on Tuesday and was hovering at around CAN$6.34, after falling 28 per cent on Monday from CAN$10.51 to CAN$7.60.

To halt the slide, the executive management of Aphria sought to buy up US$3.1 million worth of shares, which they described as a measure meant to telegraph their belief in the company.

In its statement, Aphria alleged that the activist investors could have benefited from short selling or betting against its stock. Conditions in the market indicated there was opportunity for short sellers, given the liquidity - with 35.4 million units trading on Monday and more than 20 million units on Tuesday. The daily volume of the stock usually hovers below one million units.

 

EXERCISE CAUTION

 

"Investors should exercise caution in relying on misrepresentations and distortions contained in the report," Aphria said in market filings on Monday as it tried to cauterise the fallout.

The US$193-million regional deal, which closed in September, involved tangible and intangible assets spread across Argentina, Colombia and Jamaica, plus the option for an investment in Brazil. Aphria did not disaggregate the investment in each market in its filings.

"We have nearly 100 employees across the region dedicated to advancing the company's business interests, including cultivation, processing, research and development, partnerships and continued expansion. International operations are a core component to our proven growth strategy and we are working to integrate and enhance operations and product channels throughout Latin America to position them for sustainable, long-term shareholder value creation," Aphria said Tuesday.

Of the employees in the region, there are 22 in Jamaica, who Aphria said have cultivated more than 2,500 kilogrammes of marijuana to date. There are also plans to take over possession of 10 acres of land at Bernard Lodge in St Catherine, and medium-term plans to set up five herb houses.

Aphria said its regional investments were made after receiving "financial advice and a fairness opinion from Cormark Securities", which it described as a reputable firm.

Aphria holds CAN$1.4 billion in equity with assets of CAN$1.6 billion, of which CAN$524 million is goodwill. The cannabis company made CAN$21 million in profit for its August quarter on revenues of CAN$35.4 million.

business@gleanerjm.com