Several months ago, Aphria (APHA.T) lost a good chunk of its worth when short sellers accused the company executive and board of (in a nutshell) feathering their own nests by agreeing to acquire properties from themselves, for much inflated prices.

Today, after a ridiculously long wait which involved the CEO stepping sideways from his position and quickly made but long forgotten vows to seek legal recompense, Aphria finally responded.

Aphria Inc. today announced that its Board of Directors has accepted and considered the report of the special committee of independent directors, which reviewed the allegations made against the Company in respect of the Company’s previously completed acquisition of LATAM Holdings Inc.

The bottom line:

The following is a summary of the principal findings of the Special Committee focused on the LATAM assets: The assets acquired pursuant to the Acquisition in Argentina, Colombia and Jamaica were verified to be in place and continued to develop according to the Company’s business plan since the Acquisition, consistent with Aphria’s previous public disclosure; [Okay…] Comprehensive, in-person site reviews were conducted by advisors to the Special Committee, which confirmed the existence of the LATAM assets and operations in each of Colombia and Jamaica, as well as work to confirm the contractual and permitting arrangements in Argentina; and [Okay…] The consideration paid for the assets purchased in the Acquisition was determined to be within an acceptable range as compared to similar acquisitions by competitors, be it near the top of the range of observable valuation metrics. [So they overpaid, as alleged]

Homers for Aphria will claim this ‘report’ (actually, it’s a summary of the report, which I’d really like to see) clears their names, but it doesn’t at all.

It can’t be ignored that an independent viewpoint suggests the company overpaid for their assets they bought, because the company was buying them from one of their founding investors, and with tendrils leading from those assets to members of their executive team.

In short, overpaying themselves for assets is exactly what they were accused of, and what their independent report has shown happened.

Based on further information available to the Special Committee, it appears that certain of the non-independent directors of the Company had conflicting interests in the Acquisition that were not fully disclosed to the Board.

THIS IS A BIG DEAL.

How big a deal?

This big:

As previously press released on January 11, 2019, Vic Neufeld and Cole Cacciavillani have completed a responsible transition plan and effective March 1, 2019 will be retiring from the Company (including in their capacity as directors). […] In addition, John Cervini will step down as a director of the Company effective as of March 1, 2019. Mr. Cervini will remain in a non-executive operational capacity within Aphria.

The report recommends the board take on actions to prevent this from happening again, namely:

Board and management : review board composition to ensure that the majority of the board consists of independent directors and deliver ongoing training for directors and senior management on corporate governance matters;

: review board composition to ensure that the majority of the board consists of independent directors and deliver ongoing training for directors and senior management on corporate governance matters; Corporate governance : create and implement a policy to address common directorships and executive positions and enforce controls to assess and mitigate risk with respect to acquisitions, transactions and material contracts;

: create and implement a policy to address common directorships and executive positions and enforce controls to assess and mitigate risk with respect to acquisitions, transactions and material contracts; Strategic planning and transaction process : establish and implement a formal process with respect to strategic transactions;

: establish and implement a formal process with respect to strategic transactions; Conflicts of interest : adopt best practices to manage potential conflicts of interest including disclosure of all direct or indirect ownership interests that could give risk to potential conflicts of interest to the Independent chair and a review of such potential conflicts and ownership interests on a regular basis; and

: adopt best practices to manage potential conflicts of interest including disclosure of all direct or indirect ownership interests that could give risk to potential conflicts of interest to the Independent chair and a review of such potential conflicts and ownership interests on a regular basis; and Reliance on independent experts and advisors: confirm independence and qualifications of external experts and advisors prior to engagement on transactional and other matters.

Timing this to drop on the same day as the much awaited and sure to dominate headlines Canopy Growth Corporation (WEED.T) financials was a bit of an obfuscation master-stroke, as was putting it out on a Friday, when half the market is making plans for the weekend, not to mention waiting three months to actually respond to the allegations.

As for where this leaves the laughingly fake ‘hostile takeover bid‘ from Vic Neufeld-aligned Green Growth Brands, I doubt we’ll ever hear from them again, now that their real purpose – to delay information from coming to hand long enough for the heat to cool off – is no longer needed.

If there’s a positive to take away from today’s note, it’s that the old guard, which was so happy to enrich itself at the company’s expense, is out.

But what is left, exactly?

This is from mid December:

TORONTO — Law firm Koskie Minsky LLP says it has filed a proposed class action against cannabis company Aphria Inc. and its chief executive and financial officers after the company was targeted by short-sellers. The firm says the lawsuit alleges the company made false and misleading statements related to its acquisition of LATAM Holdings Inc., had improper disclosure controls and procedures, and that company insiders benefited from the deal. None of the claims have been tested in court.

Today’s summary of the independent report CONFIRMS these allegations, and a new board doesn’t replace losses from investors who fell victim to Neufeld and co’s double dealing.

My take from all this – and we still haven’t had a chance to see the actual report, which would make for far more interesting reading and potential class action lawsuit fodder – is that the short sellers were largely right, that the board members walking are evidence of that, and that the independent review has discovered things that you, as investors, would not be happy with.

This ‘summary’ of that is focusing on the positives while disclosing the negatives that need to be disclosed from a compliance perspective but, make no mistake, as shitty as this looks for Aphria, this is the positively spun version of events.

The negatively spun version is still lying in wait. Short sellers will not be retreating from this one any time soon.

— Chris Parry

FULL DISCLOSURE: No dog in this fight.