In a shocking and unexpected move made on Thursday night, The Global and Mail reported that Aphria (TSX:APHA)(NYSE:APHA) CEO Vic Neufeld is slated to step down from his position at the helm as soon as his replacement is found. According to The Globe and Mail, Aphria is on the lookout for a “prominent executive with global know-how” with earnings slated to release on Friday morning.
By the time you’re reading this piece, Aphria’s earnings will probably be released; judging from the unusual timing of Neufeld’s ousting; the results are probably going to be less than peachy. And although a potentially severe bloodbath may ensue after what’s been a fairly impressive relief rally for marijuana stocks over the last few days, I do not believe the sudden “stepping down” of Neufeld is an indication that the short-seller allegations are proven to show merit.
Investors definitely have a right to be worried, however, as Aphria’s short-seller, Quintessential Asset Management, is acting as a major thorn in the side of a company. And it’s this thorn that’ll dampen rallies and exacerbate negative moves. The short-seller allegations may be smoke and mirrors, but most investors don’t want to take a chance on an already speculative name in an already horrifyingly volatile industry.
Add a big earnings miss and/or guidance downgrade into the equation and you’ve got the formula for a catastrophic implosion that’ll make the broader marijuana industry’s October-December 40-50% dip seem like nothing.
Did Quintessential really catch Aphria going offside?
You may recall that Grego referred to Aphria’s Latin American and Caribbean assets as “virtually worthless.” Ever since the short-seller cries, many analysts have changed their recommendations to “in review” to get a chance to review the concerns that Grego shed light on.
In a recent investigative report conducted by Bloomberg, reporter Ezra Fieser discovered the operating farm in Jamaica in addition to a pot shop, which essentially nullifies the “worthless” claim made by Quintessential.
While Aphria may have overpaid for the assets, they’re hardly worthless. They’re tangible, and I believe that shows that a huge Quintessential claim is factually baseless. While I’m still not a fan of Aphria stock, as it’s been my least favourite marijuana player in the space for a while, I don’t think Neufeld nor Aphria is guilty of meaningful wrongdoing.
Shareholder destructive acquisitions may have been made, and the company may be a sub-par player relative to its peers in the space, but the company probably isn’t as worthless as Quintessential believes it to be. Severely overvalued and ripe for a bigger decline? Perhaps, but given recent insider buys, I’d say that management knows for a fact that it’s innocent, and that an innocence rally may be in the cards at some point in the near future.
Foolish takeaway on Aphria
Neufeld is being shown the door, but that doesn’t mean Quintessential won its battle against Aphria. Given the recent investigation conducted by reporters at Bloomberg, I’d say that Aphria may be a timely buying opportunity as soon as the dust has a chance to settle.
I have a feeling that the Street won’t react too kindly to Neufeld’s ousting, even if the earnings aren’t as abysmal as I’m expecting. In any case, investors should avoid the stock right now because it’s a fragile stock with a target on its back. But even with the recent bout of negativity, Aphria isn’t a “worthless” $0 stock. Far from it.
Stay hungry. Stay Foolish.
