Until recently, short sellers have been feasting on Aphria (APHA) stock. Rumors of self-dealing directors, acquisitions without assets and overpayment for assets acquired. Between its September high of $16.50 and the December low of $4.51, the value of Aphria lost roundly $3 billion in value.

If you are a believer in the $2.5 billion Ontario company whose near term capacity is claimed to be 255,000 kilos, the loss was painful. However, a sizable amount of the shares traded during that period were short sales (the selling of borrowed stock in anticipation of a price decline). If you were one of those fortunate, congratulations.

The stock has experienced a partial recovery from the debacle of December and is now trading around the $9.50 level. That is not a bad return: more than double in price in just a little under 90 days. But there could be more to come.

Short sellers had an impact

Back in December Aphria announced the formation of a Special Committee to review certain acquisitions using Deloitte LLP and Duff & Phelps Canada Ltd. Results of that Special Committee’s report were released last Friday.

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Conclusions included that Aphria’s acquisitions in Argentina, Columbia, and Jamaica were accurately presented and prices paid were “within an acceptable range as compared to similar acquisitions by competitors, but near the top end of the range of observable valuation metrics.”

Aphria Announces Conclusion of Special Committee Review https://t.co/5NbQdeLlDq — aphria (@aphriainc) February 15, 2019

However, the Special Committee found that “ certain non-independent directors of the Company has conflicting interests on the Acquisition that were not fully disclosed to the Board.”

Management changes

During the work of the Special Committee came the resignation on January 11th of Aphria’s two top executives, CEO Vic Neufeld, co-founder Cole Cacciavillani vice-president growing operations. Both men had been with Aphria since the beginning in 2014. Age 63 and 64 they are hardly at retirement age.

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It is difficult to understand how two entrepreneurs would jump ship just as the fruits of their five-year effort are on the verge of exploding. Independent board chair Irwin Simon and President Jakob Ripshtein are searching for replacements. While this is underway, the company and its 255,000 kilos of production could be vulnerable.

What is the next move by Green Growth?

With Aphria stock selling at $9.50, Green Growth Brands offer of 1.57 shares of GGBXF is nothing but laughable. Based on current prices, it values APHA at only $6.65 per share. So will there be a sweetener in the coming days? Highly unlikely given GGBXFs size and other constraints. But that illustrates that Aphria is being valued on something more than the GGBXF offer.

Looking solely at its production assets the company valued at less than $9 per share. That is about the current price. But that is a very crude measure and includes nothing more. However, at least it shows the stock price is based on a renewable production capability.

Aurora with its $7 billion market cap and thirst for production are paying two and one-half times more for Whistler. Admittedly, this is a ridiculous price, but deals these days are being made at ridiculous levels. Aurora cannot be the only ones looking at Aphria.

Responsible investment advisors warn against investing in stocks involved in takeover speculation. I very much agree. It is a super high-risk way to earn a living. Having said that, I believe that Aphria will increasingly be priced to reflect deal values; both real and rumored.

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There are three reasons for this view: a lagging stock price and loss of key executives are the first two. Finally, the report of the Special Committee provides any prospective buyer an independent and highly respected members (Deloitte and Duff & Phelps) to use in their due diligence. So the days when short sellers feasted on Aphria are clearly over.