The Investing News Network rounds up some of the biggest company and market news in the cannabis market for the past trading week.
During the past trading week (December 3 to 7), the company behind Marlboro cigarettes made a US1.8 billion investment in a cannabis company.
The turbulent ride for Aphria (NYSE:APHA,TSX:APHA) investors as part of a pair of short seller reports also made headlines throughout the week alongside an executive request pursuing NASDAQ listing
Here’s a closer look at what some of the biggest news was during last week’s trading period.
Cronos obtains coveted deal with Altria
As part of the deal, Altria will gain shares of Cronos to obtain a 45 percent ownership interest in the cannabis company. Through additional options, Altria is allowed to increase its stake to 55 percent.
During the week, Cronos confirmed talks were in development but at the time said no assurance could be made regarding the deal.
Mike Gorenstein, CEO of Cronos, said Altria is the right partner for his company. He added that the money from the investment will be used to “expand our global infrastructure and distribution footprint, while also increasing investments in [research and development] R&D and brands that resonate with our consumers.”
Altria faces challenges as its revenues decline and its market projections faced pressures from low sales.
According to CNN Business, Altria’s shares have dipped 25 percent so far in the year while the company is projected to report a revenue growth of “only about 1 [percent] this year and in 2019.”
Cronos ends up beating fellow cannabis companies for the deal, as this wasn’t the first time the parent company of Marlboro cigarettes maker Philip Morris USA was linked to the marijuana space.
In October, a report appeared connecting the cigarette producer with Aphria for some version of a partnership.
“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” Howard Willard, Altria’s CEO, said in a statement.
Doug Waterson, CFO and portfolio manager with Faircourt Asset Management and manager of the Ninepoint UIT Alternative Health Fund, had previously told the Investing News Network he expected tobacco’s play in to cannabis to be more complicated than alcohol or pharmaceuticals.
“Tobacco you would think … they have their own baggage obviously to deal with,” Waterson said. “I would say it’s more important to them to do a deal but it’s also probably more difficult just politically, [with] shareholders, everything. It’s a challenging thing.”
Aphria and partners targeted by short sellers
On Monday (December 3), Quintessential Capital Management and Hindenburg Research published a report and issued a presentation on faults they discovered and allegations raised against the way Aphria had gone about acquiring its Latin American assets.
In the report, the firm states that the research makes it believe that “Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.”
In September, Aphria closed a transaction acquiring the Latin American assets of Scythian Biosciences, now known as Sol Investments (CSE:SOL). These included facilities, licenses to operate and other assets in Colombia, Jamaica, Argentina and Brazil.
The report argued Aphria had spent over C$700 million in “worthless” assets.
Gabriel Grego, founder of Quintessential Capital Management, has said he welcomes legal action from Aphria or the fellow companies listed in the report. Grego said of the allegations and the report:
The game is they seem to go out, buy themselves very cheaply some companies in emerging markets and then sell them again, first to Scythian and then to Aphria for gigantic valuations and we believe this has not been disclosed properly to investors.
Aphria has defended itself throughout the week and even announced an independent group to investigate the purchases. However, the market has sold off on the stock of the Canadian producer.
Since Monday, the stock has suffered a turbulent ride with an immediate decrease, reaching a low of C$4.87 on Wednesday (December 5). As of 12:30 p.m. EST on Friday, Aphria shares are up 4.90 percent from its previous close to C$7.92.
— Chris Goodwin (@ChrisGoodwin79) December 6, 2018
On Thursday (December 6), Hindenburg Research continued its attack on Aphria by publishing a second independent report now focussing on similar alleged irregularities with Aphria’s US partner Liberty Health Sciences (CSE:LHS).
“At this point, we think the responsibility is on management to earn back shareholder trust and begin making all the beneficiaries of these shell transactions, discounted private placements, and related deals fully transparent,” the new report indicated.
Hindenburg Research focussed on the acquisition of a Florida property by Liberty, which involves some of the same role players from the Aphria and Sol Investments situation.
“Liberty takes the unconfirmed allegations contained in the Report very seriously and will provide updates as they relate to this matter in due course,” the US company said in a statement in response to the report.
Aleafia chairman asks for support on consolidation move for NASDAQ listing
Fantino told shareholders in a letter that in order to obtain a NASDAQ listing the Canadian LP may have to consolidate its shares to meet the minimum share price requirement from the exchange.
“Successfully listing on a major US stock exchange would broaden Aleafia’s shareholder base, and increase appeal to institutional investors,” Fantino wrote.
In the letter, the chairman presented his case by sharing the following points:
- Aleafia will only pursue a share consolidation if it is deemed necessary to meet NASDAQ requirements. This resolution simply allows the flexibility to pursue this option at an advantageous time for Aleafia’s shareholders.
- If a share consolidation is enacted, it will not have an effect on the percentage ownership of each individual shareholder or the company.
- We may not need to pursue a consolidation.
Since the announcement on Monday the share price for the company has dropped over 11 percent in value.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.