As the days turn into weeks, odds of a line-by-line Aphria Inc (TSE:APHA) (NYSE:APHA) (FRA:10E) rebuttal grow increasingly slim. Now three-and-a-half weeks into the antagonistic report provided by Hindenburg Research, the company shows no signs of disrupting the relative calm which has descended on the stock (albeit, at discount). Good strategy or bad strategy? Midas Letter weighs-in with our thoughts.

To briefly recap, Aphria was the victim of a short-seller report published on December 3rd titled Aphria: A Shell Game with a Cannabis Business on the Side. By now, we all know the nasty details, as supporters and detractors on both sides have dug into entrenched positions. Without delving into which ‘side’ is correct on the issue (perhaps both), the fact remains that Aphria has apparently chosen silence as its primary ally.

For a time, it appeared the company would be proactive on the matter. On December 5th, CEO Vic Neufeld told BNN Bloomberg that, “We need a complete rebuttal, not a piecemeal rebuttal. There’s lots of allegations of impropriety, and we want our deck to speak on the facts.” A couple days later, the Windsor Star paraphrased Vic Neufeld by proclaiming his “rebuttal will likely be released (next) Wednesday.” Indeed, investors eagerly awaited rebuttal points to be “very informative” and ones that would “shed the real light on the story.”

Well, two weeks removed from that self-imposed deadline, investors are still waiting. But if Aphria did decide in retrospect that silence was golden, was it the right decision? From a market perspective, perhaps so.

Whatever value you ascribe to Hindenburg’s report, the damage was already done. After reeling for much of November, Hindenburg administered a direct hit to a vulnerable stock testing multi-month lows. In three sessions following the release, APHA dropped ↓52.42%—through important yearly support on record volume. At that point, whoever wanted to sell was already inclined to do so. There was nothing Aphria could say to repair the immediate damage and squeeze the genie back into the bottle; downside volume was too great, the breadth of exodus too pronounced.

That’s not to suggest that issuing a strong rebuttal held no value. But regaining investor trust is a longer-cycle issue—something words alone can rarely accomplish.

Setting aside potential legal complications, a change in legal counsel, and subjecting itself to another negative PR cycle rebutting the report would entail, Aphria has apparently decided that subjecting itself to potential counter-attack is an unwise maneuver. Instead, it appears to be letting its actions do the talking.

Three days after the crisis, Aphria’s Board of Directors appointed a special committee of independent directors to review its LATAM purchases, while affirming that it conformed with all Company policies and generally accepted corporate governance practices. While no timetable or “comprehensive review” specifics were given, investors received a taste of the company’s IR strategy to come.

Less than a week ago, Aphria expanded its Corporate Governance webpage from a single line of text and three links to something more robust. The page now includes nine PDF documents that were not previously there, along with the requisite description about how corporate governance is the company’s guiding light. If a company wanted to enhance their corporate image in a safe manner, that’s one way of accomplishing it.

There’s also Vic Neufeld’s noticeably low-profile. Previously, the gregarious CEO would rarely escape the limelight for more than a week or two without some camera staring him in the face. Now it’s been almost four. We also note that Vic’s presser quotes are M.I.A., where previously they were common.

Final Thoughts

While none of the above constitutes “evidence” that the rebuttal is conclusively dead, Aphria’s low profile and barren messaging suggest they will let time do its thing. At this juncture, potential returns are so diminished that rebutting anything probably constitutes more risk than benefit. That fact won’t satisfy everybody, but the company was in a no-win situation either way.

If they issued a comprehensive rebuttal, detractors would poke holes in whatever responses they received; Hindenburg would be guaranteed to do the same. They also would potentially give various class action lawyers ammunition to find informational discrepancies. Furthermore, winning back detractors was unlikely given many were convinced that some form of corporate malfeasance took place. Ultimately, appealing to a new generation of investors was probably more doable than going after disgruntled ones—and that’s hard to accomplish when you’re mired in a pernicious news cycle.

Of course, the downside to not responding is that feelings of mistrust could linger. Fair enough. But with Citron Research and Scotiabank supporting the company publicly, and with Aphria’s revenue curve about to go full-swing, the company is likely betting that public opinion has already stabilized enough that further commentary isn’t necessary. The hope is that the company’s financials can refocus and win over new investors (Aphria reports 2Q 2019 results January 11th).

While this stance won’t appease everyone, it’s hard to argue against that perspective.