No cannabis company had a worse December than one of the biggest names in the business, Aphria (TSX:APHA) (NYSE:APHA). Rocked by a crisis of confidence in its management, Aphria stock dipped 61% last year and hit a year low of $5.00 in December.
The company still has a lot of work to do to regain investor trust. But the question is—are its recent January gains a sign of forgiveness?
Aphria Stock
To put it in perspective, APHA stock was selling for a cool $21.00 before Canada legalized recreational cannabis in October. While the stock decrease since then can be attributed to an industry-wide sell-off after the fact, there was another significant reason why Aphria investors bucked and ran from the company.
Crisis of Confidence
In brief, Quintessential Capital Management and forensics analysis firm Hindenburg Research released a report. It alleged that Aphria's $300 million CAD purchase of three Latin American properties was, in essence, a dud. The properties were considered "worthless."
So why pay $300 million for them?
The properties were previously bought by SOL Global Investments (CSE:SOL) (known as Scythian Biosciences at the time) for far less than they were sold to Aphria for. What sealed the deal for investors was the connection between SOL Global Investments and Aphria's advisors. The report unveiled chairman of SOL, Andy DeFrancesco, as a vested party to all three assets.
The suggestion was that Aphria was simply lining the pockets of one of its advisors, instead of paying a fair price for the assets.
Aphria stock was decimated, and confidence in management shattered.
Denial and Repair
The company denied the whole fiasco and has since been conducting an internal review of the acquisitions. It has also swapped out its CEO. Also, some think that this report was simply overblown.
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Aphria stock started to climb again recently off the back of modest Q2 2019 results. So are investors tepidly regaining trust?
The Botton Line
At the end of the day, the crisis of confidence from within was clear to see with December's colossal stock drop. One more event could see Aphria stock easily crash again. Investors can forgive mistakes, but dishonesty is a whole other issue.
Plus, the competition in this sector is stiff and, to put it plainly, there are smaller companies producing similar numbers out there. It's kind of like choosing a boyfriend; Aphria stock may be the popular quarterback, but he comes rocked with trust issues. Who needs that kind of drama?
Featured Image: Canva
