Aphria CEO Vic Neufeld To Exit Amid Short-Seller Drama; Tilray Soars

Canadian cannabis producer Aphria (APHA) on Friday said CEO Vic Neufeld will exit in the coming months amid short-seller accusations as the company reported its first quarterly earnings as a member of the New York Stock Exchange. Aphria stock fell modestly. Other marijuana stocks were mixed, but Tilray (TLRY) soared.

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Aphria Earnings

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, declined to 6.54 Canadian dollars per gram in the quarter, compared to 7.12 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, as well as temporarily lowered yields and 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, compared to 35,000 kilograms currently, by the end of calendar 2019.

Aphria CEO Vic Neufeld Steps Down

Aphria CEO Vic Neufeld and Aphria co-founder Cole Cacciavillani will exit the company in the coming months. 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.

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.

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 a special committee to review the transactions. CEO Vic Neufeld vowed a line-by-line rebuttal to the allegations. But the company delayed it pending the committee’s review.

The drama escalated late last month when Aphria rejected a takeover bid from a U.S.-based company called Green Growth Brands, saying 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.

Aprhia Stock

Aphria stock fell 4% before the open in the stock market today. Aphria began trading on the NYSE Nov. 2, and is still listed in Canada.

Tilray Stock, Marijuana Stocks

Tilray stock jumped 21% 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.

Among other marijuana stocks, Cronos Group (CRON) and Canopy Growth (CGC) fell a fraction. Aurora Cannabis (ACB) lost 1.5%.

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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