Noted short-seller Gabriel Grego, the founder of long-short hedge fund Quintessential Capital, revealed a scathing short of cannabis company Aphria (APHA).
“This presentation is not about cannabis,” Grego said, before adding, “We believe there’s something sinister happening in this company.”
At the Kase Learning Shorting Conference, Grego delivered a 129-slide presentation entitled “The Black Hole.” His thesis is that Aphria is a “scheme to funnel money from retail investors into the pocket of shareholders.”
Grego presented a case of a company that’s gone on a $700 million-plus Canadian dollars “acquisition spree” in the last year. During his research, he found that the company has acquired other companies with “almost worthless value,” little or no sales, with registered offices in dilapidated buildings, and with some of the licenses that are only conditional.
“They seem to have bought themselves an amount of value for that $700-plus million that’s a fraction of that value,” Grego told Yahoo Finance. “But more worryingly, we found what seems to be like a systemic approach to try and hide the involvement of people who are insiders of the company. In other words, these acquisitions get made from shell companies that are theoretically at arm’s length, but we can see very clearly there was the presence of some of the company’s insiders.”
Shares of Aphria dropped a much as 20% in the pre-market.
“Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory. The Company is preparing a comprehensive response to provide shareholders with the facts and is also pursuing all available legal options against Quintessential Capital,” Aphria said in a statement to Yahoo Finance.
At the conference in May, Grego made a name for himself with his short of Folli Follie on the Athens Exchange. After exposing the company as a fraud, regulators halted the stock in less than two weeks and it hasn’t traded since.
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Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.