It’s time to end the charade. Canadian licensed cannabis producer Aphria (APHA.T) has long been considered one of the ‘big three’ in the North American scene, which helped them benefit from institutional investment, pension fund allocations, and ETF involvement, and contributed to a long rising market cap that topped out in January 2017 at around $5 billion.

But Aphria also revealed itself early on as a shady outfit, when they set up a secondary area of their website for Canadian veterans, who receive government subsidized medical weed, and ramped the prices up on that side of their website accordingly, expecting the feds not to notice.

At the time, most onlookers, myself included, considered that piece of – let’s call it what it is – fraud to have been more down to disorganization at head office and a lack of oversight at a fast growing company, more than a top down decision of hubris. Heck, Vic Neufeld, head honcho at Aphria, had just come from Jamieson Vitamins (JWEL.T), which has long filled your grandma’s medicine cabinet with everything from echinacea to cod liver oil to saw palmetto.

Neufeld’s arrival on the scene wasn’t just applauded, it was considered the first real sign that the cannabis industry was every bit as important as it had promised it would be.

But Vic Neufeld, it turns out, has overseen an enterprise that could arguably be called fraudulent, that has taken millions of investor dollars and funneled it to the company’s founding investor, as he sold them piece after piece of rinky dink pseudo-assets, that the company would then flaunt as being worth more than what they paid for it (which was far more than what their inside man paid for it) as evidence Aphria deserved billions more in valuation.

And the boss himself, and his directors, joined in on the pilfering, buying up chunks of the assets they would then purchase with company dollars, signed off on as valuable by a third party that thanked them for the work and fees, and since bailed when the spotlight exposed their work.

That scam – and it is undeniably a scam – went on for far too long, with the blame properly being leveled at everyone from the executive suite to the board to their banks and lawyers – not to mention investors who let growing valuations cloud their view of what was really going on, and the media, myself included, which asked far too few questions of it all, enthralled by the aura around one of the cannabis industry’s bigger names and awarding him a level of trust it’s clear he never deserved.

We are calling for Vic Neufeld to stand down, with immediate effect.

A few weeks back, a New York short seller outfit presented an investigation, and much evidence, that Aphria was less about growing and selling weed as it was chiseling profits for those at the top on a series of juiced acquisitions that benefited them personally, while sucking the company dry.

Here’s that presentation. It’s pretty dry, and long, but it’s also devastating.

From Stockwatch:

The Globe’s Christina Pellegrini writes that Aphria’s stock plunged $2.91 to close at $7.60 on Monday, erasing the gains it made in the past year, after Gabriel Grego — who runs a fund in New York called Quintessential Capital Management and co-authored the report — presented the allegations Monday at a short-selling conference in New York. In July, Aphria said it would issue nearly 16 million shares to purchase a company that owned stakes in three cannabis entities in Jamaica, Colombia and Argentina. The seller — then-named Scythian (now Sol Global) — was still in the process of finalizing deals of its own to buy the foreign assets from three privately held Canadian firms for what ultimately turned out to be less than a third of what Aphria would end up paying. On Monday, the short sellers claimed the valuations of those assets “appear to be vastly inflated or outright fabrications.” Aphria said Monday the allegations are “false and defamatory.”

Aphria boss Neufeld said he would quickly issue a clear response to the allegations, but the response was weak, limited, and played with wording instead of actually clearing Aphria’s name.

The report makes reference to the company’s LatAm acquisition, which closed on Sept. 27, 2018. In connection with this transaction, the board of directors of Aphria confirmed that it received financial advice and a fairness opinion from a reputable firm that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view, to Aphria and its shareholders.

Instead, Neufeld and co. opted to buy up their now cheap stock, presumably hoping to stem the bleeding while claiming they were doing it out of confidence.

“Yesterday, I, along with other members of our executive management team, stepped up to demonstrate our confidence in the company’s business plan, growth strategy, integrity and value of the assets by personally investing more than $3.1-million in Aphria’s common shares,” concluded [CEO Vic] Neufeld.

APHA stock was duly slaughtered.

The short sellers followed up with more evidence, and mocked Neufeld for his semi-response.

We alleged that on current Scythian Chairman Andy DeFrancesco’s private Instagram account we saw his bragging about purchasing the very pharmacy into his own private equity firm one week before flipping the Argentine entity to Scythian for C$27 million (and hashtagging #GreedIsGood)

Neufeld duly replied once more, claiming the company was working on a line-by-line takedown of the allegations – this time for reals.

That takedown has not appeared.

Instead, Aphria struck a committee of its board members to investigate the claims, consisting of board members who it appears had previously signed off on those same deals they were now investigating.

Days after that, with still no company refutation of the allegations made weeks before, Aphria announced it was looking for new lawyers, a sign that they either didn’t like what their lawyers were suggesting of them, or that the lawyers chose to fire their clients. There is no logical third option we’re aware of.

Aphria says there should be no problem here because they had outside advice on these deals.

The board of directors of Aphria received financial advice and a fairness opinion from Cormark Securities Inc., the company’s independent and qualified financial adviser, that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view, to Aphria.

But Cormark was part of a syndicate that helped Aphria raise $115m towards those acquisitions, early in 2018, and $225m midway through the year, which it duly took a commission on. Can it’s independent advice be trusted?

WE ARE STILL WAITING FOR APHRIA TO REFUTE THE ALLEGATIONS.

On BNN today, Douglas Waterson, who co-manages the alternative health fund at Faircourt Asset Management, announced Faircourt has decided to clear out of the Aphria game.

“It’s a trust issue. We believe in the Canadian assets and the shares represent value from that respect, but some changes need to be made on the governance side.”

In layman’s terms: Fire Vic Neufeld and now.

Waterson isn’t dragging his cash out of the sector, and he’s not even suggesting the allegations are definitely true. He just doesn’t trust Vic Neufeld any more, and sees no reason to play poker with the assets his company manages.

“The space is so active and dynamic we can deploy our funds better elsewhere.”

As to what he thinks of the way Aphria is handling the mess, now that the company stock price is down 2/3 from it’s near top just a few months ago, he’s saying what we’re saying:

“I think a prompter and more full response to the points made in the short sellers report would have been warranted by the company.”

In layman’s terms: Duh doy.

Generally speaking, we could name five other CEOs we also think would benefit their company’s by standing down, but we don’t make a habit of calling them out because just being bad at your job isn’t enough to justifiably trigger strangers to demand the cessation of employment.

But fraud is. And whatever you think of the short seller allegations – and we do believe them – the response by Aphria against them has warranted a solid F rating.

When Cronos (CRON.T) was hit by a short seller attack and short report just a month before Aphria took its beating, the company’s CEO was promptly on TV taking any questions and dismembering the claims with the precision of a surgeon. The company dropped news releases tearing those claims apart, showed its evidence, and investors surged back into the stock.

Aphria, in comparison, has done none of the above, and we believe that’s because it can’t.

The allegations are true. The lack of proper response proves it.

Meanwhile, Citron Research short seller Andrew Left has gone to twitter and TV claiming Aphria is a super buy and great value and we should all buy as much as we can and bathe in Vic’s glory.

It should be noted that the man at the center of the Aphria scam has previously posted on social media what could be considered threats to Mr. Left.

Wonder what kind of dirt $APHA has on Citron? pic.twitter.com/jZwgV6GNE9 — Smart Money Puggaroni (@YoungPuggaroni) December 7, 2018

Also worth noting, tweets supporting Left are being picked up from bots that are word-for-word identical, indicating a directed effort is being engaged in to push a pro-Aphria story on social media.

There are four class action lawsuits now filed against Aphria.

This company is trash, and is souring institutional money on the legitimacy of all cannabis companies on the market. Sack the board and the CEO now.

— Chris Parry

FULL DISCLOSURE: No position in Aphria, at all.