Canadian cannabis producer Aphria (APHA) on Friday said that CEO Vic Neufeld will exit in the coming months, a decision management insisted had nothing to do with allegations of self-dealing by two short-sellers last month. Aphria stock and other marijuana stocks jumped, especially Tilray (TLRY).
Tilray soared after Privateer Holdings, which controls the company, indicated that the supply of Tilray stock will remain limited, in turn driving the price higher.
Aphria CEO Vic Neufeld Steps Down
Aphria CEO Vic Neufeld plans to resign while co-chairman and co-founder Cole Cacciavillani also will step away from his executive role. But both will remain on the company’s board. During a conference call to discuss Aphria earnings for the fiscal second quarter, management said no committee was established yet to oversee the transition.
Both Neufeld and Irwin Simon, who replaced Neufeld as chairman last month, said the transition had “nothing” to do with the allegations from the short-sellers, Hindenburg Research and Quintessential Capital, or a subsequent review by a special committee.
“It was a matter of, it was time,” Aphria CEO Vic Neufeld said during the call.
In a statement released earlier in the day, Neufeld said: “Building and leading a Company like Aphria, which exploded from an idea in late 2013 to our many successes to-date, has been an incredible journey, despite the toll it has taken on health, family and personal priorities.”
Cacciavillan echoed that sentiment. “Endless meetings, travel, deadlines, talent search – the list of executive responsibilities will only continue to grow,” he said in the statement.
Aphria Short-Seller Drama
Short-sellers Quintessential Capital and Hindenburg Research last month accused Aphria of overpaying for largely worthless properties in Latin America and the Caribbean an effort to surreptitiously enrich insiders. The short-sellers alleged that Aphria’s purchases were orchestrated through shell companies to cover its tracks. Aphria stock crashed after the report’s publications.
The short-sellers said the assets purchased included a farm in Jamaica and a dispensary that they couldn’t find. Aphria called the allegations “false and defamatory” and said the companies were either licensed or operational.
The company commissioned the special committee to review the transactions. Aphria CEO Vic Neufeld vowed a line-by-line rebuttal to the allegations. But the company delayed it pending the committee’s review.
It was unclear when that review might conclude. When asked on Friday to clarify whether the public could expect that review to end within days, weeks or months, Neufeld said, “It’s not days, but it will take a bit longer than that.”
Green Growth Bids For Aphria
The drama escalated late last month when Aphria rejected a takeover bid from a U.S.-based company called Green Growth Brands. Aphria, at that time, said the offer “significantly undervalues” the company. Hindenburg questioned Green Growth’s ties to Aphria.
Green Growth later said that it “is not a related party to Aphria” and that, to its knowledge, Aphria did not own any shares of Green Growth.
“As those who participate in the small, yet growing, cannabis industry know, there are many overlapping informal relationships between participants,” Green Growth said.
Reporters from Bloomberg, in a story published on Saturday, confirmed the existence of the farm and the store. The store’s display cases and shelves were empty. Quintessential told the outlet it stood by its research.
Quintessential, on Friday, tweeted that the announcement of the executive changes “clearly vindicate our short thesis.”
“With a new management team the company has a chance to a brighter future and we are accordingly moving on to new projects,” Quintessential said.
Aphria revenue rose 63% to 21.7 million Canadian dollars. Adjusted Aphria earnings jumped to 10.16 million Canadian dollars from 5.76 million a year earlier. Estimates were unavailable from Zacks.
Average selling price, inclusive of excise tax, fell to 6.54 Canadian dollars per gram in the quarter vs. 7.12 Canadian dollars logged in the prior quarter.
Kilogram equivalents sold surged 92% from fiscal Q1. The “all-in” cost of goods sold rose to 2.60 Canadian dollars per gram from 1.83 in the prior quarter.
Adjusted gross margin shrank to 47% from 64% in the prior quarter due to lower effective selling prices in adult-use market. Temporarily lowered yields also weighed. So did higher production costs related to facilities expansion and implementation of automation.
Aphria sees new production facilities generating sales later in the calendar year, pending Health Canada approvals, boosting the annualized harvest to 255,000 kilograms. That compares to 35,000 kilograms currently by the end of calendar 2019.
Aprhia Stock, Tilray Stock, Other Marijuana Stocks
Tilray stock jumped 23% early. Privateer Holdings said it had no plans to sell the 75 million shares when the Tilray IPO share lock-up expires next week. Tilray stock is the first and only pure U.S. IPO of a marijuana producer.
U.S.-listed Canadian marijuana stocks have fallen since recreational legalization began in Canada.
Newest Marijuana Stocks: A Shoe Store?
On Thursday, Green Growth Brands said it had partnered with shoe-store chain DSW (DSW) to sell hemp-derived CBD personal care products in 96 DSW stores in the U.S..
The products, which will sell under the Seventh Sense Botanical Therapy brand, include muscle balms, foot creams, lotions and body washes, Green Growth said. Green Growth is backed by the Schottenstein family, which made its money in retail. The family is also an investor in DSW. Jay Schottenstein is DSW’s executive chairman and is also the CEO of American Eagle Outfitters (AEO).
Their debut would follow President Donald Trump’s signing of the 2018 Farm Bill, which legalized industrial hemp. But hemp regulations differ from area to area. The FDA also still has regulatory authority over products that contain cannabis or derivative compounds, the agency said last month.
“We have seen recent shifts in consumer behavior accelerate changes in the retail industry,” Roger Rawlins, CEO of DSW, said in a statement.
“North America’s widespread adoption of the use of CBD products is one of the best examples of these shifts, and we could not be more excited about our partnership with Green Growth Brands and the introduction of their products to our customers,” he continued.
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