The Rebuttal – What can we expect from Aphria Wednesday??

I think expectations should be tempered on the Aphria rebuttal.  Why? Whereas there are number of allegations that can likely be proven false with pictures, statements, financial reports… the more damning of the allegations are innuendo and not fact based.  They are statements meant to illicit opinions that the reader can believe, or choose not to believe, impacted the transactions.


So how should an investor look at the short thesis?? 


Keeping in mind the shorters goal is to make you sell, they may make a “Statement of Fact” that is relevant to their thesis, or it may be irrelevant but it adds to their stack of ill will that they are building. When you strip out the all the Statements of Fact you are left with innuendo.  


So I went to the Hindenburg website and pulled down the allegations that Hindenburg said Aphria has not addressed. [These are cut from the shorters second article and pasted below.  I am not giving the website link.  Easy enough to find if you look.] I have broken them down to “Statement of Facts” relevant to their thesis and that may not be relevant to thesis, and Innuendo.


“Statement of Fact” Relevant to their thesis:

  1. We alleged that an employee of the company’s Argentine subsidiary stated that annual revenues were US$430 thousand, which directly contradicted press releases that annual revenues at the subsidiary were US$ 11 million.
  2. We alleged that a purported director of Aphria’s Jamaica subsidiary denied IN WRITING that she had ever served as a director at the company.
  3. We alleged that other supposed directors and supposed top scientists associated with Aphria’s Jamaica subsidiary appeared to either not exist or had no/limited online presence.
  4. We alleged that the company’s Colombian subsidiary was a newly-formed operation with exactly zero operating activity as of end of the year.
  5. We alleged that the company’s supposed major “purchase order” with a local Argentine hospital was actually a donation.
  6. We alleged that the company’s supposed “strong” retail presence in Argentina consisted of exactly one tiny pharmacy.
  7. We alleged that the company’s supposed distribution business in Argentina consists of an empty, unfinished warehouse.
  8. We allege that the company did not have all its required licenses in Colombia needed for cultivation.

These are a prime targets for Aphria to knock down. 

Financial Statements for the revenue allegation.  Statements from the directors and the scientists. Pictures of the Columbian asset and the ABP warehouse and distribution. Copy of required licenses for Columbia.

“Statement of Facts” but are they relevant?: 

  1. We alleged that after 6 months, the company’s office lease in Jamaica had a paper sign on its door and showed virtually zero signs of activity.
  2. We alleged that Aphria’s Jamaica subsidiary leased “unit 51” of a building complex that only goes up to “unit 50”. In other words, “unit 51” didn’t exist.
  3. We alleged that the company’s much-touted cannabis licenses in Jamaica cost only about $500 to acquire and require minimal effort.

Many of the Jamaican allegations above have been largely discredited by the poor diligence performed by their “Consultant”.  


Pictures and clarifications can address some of these elements.  But how relevant are they??….  We have learned that QCM sent out a “consultant” to check a SINGLE address.  Within 50 feet of that address was the dispensary they were looking for, that they didn’t find.  We know that the address for the Farm in Jamaica was in the Fairness Opinion. And they didn’t go there…. The cost of the physical license versus the cost to get the license and the VALUE of a license are different matters.


When you strip off the above you are left with allegations that are Innuendo [“an allusive or oblique remark or hint, typically a suggestive or disparaging one”]:

  1. We alleged that the company acquired its supposed assets [Note: “supposed” really???] through a series of shell companies established by a key Aphria/Scythian insider and deal partner Andy DeFrancesco.
  2. We alleged that individuals associated with key insider/deal partner Andy DeFrancesco purchased shares in the Jamaican entity for only US $118 (not millions) and flipped them months later for C$18 million. [Note: They do not have costs of 2 of the 3 assets AD sold to Scythian just this one.]
  3. We alleged that on current Scythian Chairman Andy DeFrancesco’s private Instagram account we saw his bragging about purchasing the very pharmacy into his own private equity firm one week before flipping the Argentine entity to Scythian for C$27 million (and hashtagging #GreedIsGood). [Note: Again, no comment on the cost acquired or profit made selling it.]
  4. We alleged that Andy DeFrancesco has a deep longstanding ties to both Aphria & Scythian. In regard to Scythian, the company until recently listed its head office at the same address and suite number of the Toronto office of DeFrancesco’s private equity firm, the Delavaco Group. Scythian’s CFO until late September was Jonathan Held, who operates his consulting firm out of the exact same address and suite number as the Delavaco Group’s Toronto office. Delavaco’s COO was the “finder” of Scythian’s reverse-merger deal to take the company public. Delavaco participated in Scythian’s bought deals. DeFrancesco was named Scythian’s Chairman of the Board and Chief Investment Officer on the EXACT SAME DAY the company closed on its acquisition of the Argentine entity. [Note: They do not draw any conclusion here.  Why not? Legal liability would be my guess]
  5. We alleged that Canadian regulators said Andy DeFrancesco has “little regard for the truth” [Note: I understand this statement is in a court document. This is correct from my understanding] and was involved in a forgery scheme. We alleged that DeFrancesco had business ties with multiple individuals the SEC has alleged [Note: “alleged” but still not a good look] to have committed securities fraud including Barry Honig, John Stetson, and John O’Rourke.

If you expect Aphria to be able to refute these allegations… what exactly are they refuting?


The core of the shorts thesis is that that insiders were enriched and the Latam assets were worthless.

I said in my post Saturday night… that without an open auction there is no way to satisfy if the assets were “market priced” at time of sale.  So proxies are used.  These proxies include the Fairness Opinions. That is the standard. Is there a limit on the profits a Seller can make if the Buyer sees the asset of $X in value??


I think a fair question to ask is…. if Vic was on Scythian’s board and AD accumulation activities were well known, why were the assets funneled through Scythian before Aphria?  Why were they not just sold straight up to Aphria? [This is a q that one of our community members asked too]


The following is speculation on my part and I hate speculating, as I prefer that management tells me facts… Was Scythian originally targeted to be the publicly traded Aphria International that Vic mentioned back in Feb/2018 that never came to be? So, they started parking assets in Scythian for a potential acquisition.  But post NUU acquisition they pivoted and decided not to do an acquisition of Scythian but simply acquire the assets?

Again… the above is a question that is not in the short thesis that I would like to understand.


If you question the VALUE of Aphria’s Latam assets do other LP’s now have to be scrutinized for their payments on assets? .  How about Canopy’s two BC Greenhouses and Canopy Health Sciences? How about Aurora’s purchase of CMED for a $1 billion plus and MedReleaf for $3 billion plus??  These transactions generated vast sums of Goodwill and Intangibles on their respective balance sheets.   Are they going to be scrutinized next??

Last Q $ amount of Goodwill/Intangibles and same as % of Long Term Assets:

  • ACB had $3.5 billion or 85% of Long-Term Assets
  • Canopy had $1.2 billion or 54% of Long-Term Assets
  • Aphria had $760 million or 63% of Long-Term Assets


I am a structured commercial lender by trade and I was a Credit Auditor for a large Canadian bank.    As a Credit Auditor we looked for anything untoward in credit submissions by credit staff for Credit Risk, Administrative Risk or Documentation/Security Risk.   I can tell you if we found factual errors in credit writeups we then went over the entire credit writeup with a fine-tooth comb.


The errors and over statements in this thesis start with “worthless latam assets” and “stock price is going to zero”, with no value placed on substantial Canadian operations. They continue with unnamed employees being asked questions with no supporting proof.  They get downright absurd with not finding the dispensary and not looking for the Jamaican Farm, nor providing pictures of the rest of the Argentine assets.


Here are some more of the quotes that don’t hold up or are over zealous:

  • We performed extensive on-the-ground due diligence in Jamaica, Colombia, and Argentina and will present evidence that the newly acquired asset values appear to be vastly inflated or outright fabrications…

“Extensive” due diligence but also incomplete. YOU missed several KEY assets whose addresses were readily available. “Vastly Inflated”… they provided NO comparative market purchases to measure that against.  Scythian did flip the properties for a substantial profit, but that is what they are supposed to do.  If George gave Aphria a sweetheart deal, then Scythian would be sued.   “Outright fabrications” could be the most over the top thing they could say.

  • [Commenting on Apha assets on balance sheet] C$86 million in equity investees and long-term investments which we believe are the product of related-party deals and are significantly impaired.

These are largely marked to market each quarter under the various tiers of hierarchies. No mention of how they are “significantly impaired”.

  • He [AD] has served as advisor to all of Aphria’s bought deal financings

No he hasn’t.   He did some of the early ones.

  • It appears that efforts were made to conceal the relationship to Delavaco. The names to all of these entities were changed prior to the acquisition announcements, ensuring that the “Delavaco” name didn’t show up in any of the deal-related press releases. 

But on BNN Grego said these were VERY easy to find.

If I were still in Credit Audit function and I read a credit file with this many inaccuracies and over zealous statements I would become suspect of entire credit recommendation.  Heck, I would pull that account managers entire portfolio and go over every credit file of note that they worked on. [BTW…That happened more than once.]


Aphria has their work cut out for them on their rebuttal.  They have far more information at hand than I did in knocking this out. 


The most salacious statements are innuendo.  IF [Note: the capitals!!] Aphria can knock down the “Statement of Facts” in the allegations…. The shorts are likely to hang their hats on ONLY the innuendo. 


If and how Aphria “addresses” the innuendo will be challenging, because “proving” open ended statements is like grasping smoke, and will no doubt leave some unsatisfied with their rebuttal.  This is the part of their rebuttal that will be the toughest to sway investors that are already set on their opinions.  



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