Cannabis Titans Fall

Written by Nick Hodge
Posted December 5, 2018 at 4:49PM

Well, well, well…

Some of these early multibillion-dollar pot stock companies are turning out not to have the goods they say they do.

Who could’ve possibly seen this coming? 

On the very day cannabis went legal in Canada — October 17 — I wrote to you saying:

What’s emerged is a small group of lead dogs in the space. You know the names: Canopy (NYSE: CGC), Aurora (NYSE: ACB), Aphria (NYSE: APHA), and Tilray (NASDAQ: TLRY).

We should be grateful these companies paved a new path forward. That they made the world pay attention. That they attracted some of the world’s biggest companies and brands — Constellation Brands, Coca-Cola, Altria, etc. — into committing billions to a ground-floor industry. That they lit the fuse.

But I must say, at this point I’m beginning to worry that some of those fuses may not light the charge. That they’re, for lack of a better word, duds.

My word, look at the charts since that very day:

Canopy Growth Tilray Aphria Aurora Stock Chart

The worst of the bunch has been Aphria (NYSE: APHA), which came under short attack this week by Hindenburg Research and Quintessential Capital Management with a report that started like this:

Aphria: A Shell Game with a Cannabis Business on the Side

Summary:

  • We are of the strong opinion that Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.
  • Aphria’s recent C$280m Latin American acquisitions raise major red flags. Our extensive on-the-ground research shows that the transactions appear to be largely worthless.
  • Example: The official registered office of Aphria’s C$145m Jamaican acquisition is an abandoned building that was sold off by the bank earlier this year.
  • Example: Aphria’s C$50m Argentine acquisition publicly boasted sales of US$11m in 2017. A worker at the company, however, affirmed that 2017 revenue was only US$430k.

That was followed by 38 pages of evidence.

Ouch.

I told you some of these big cannabis companies weren’t on the up-and-up. Aphria shareholders lost half their money in a day as a result.

But what really sticks in my craw is that no one caught this prior. Aphria was a major darling of many bank analysts. It just uplisted to the NYSE. Shouldn’t someone have raised these questions earlier?

As I was asking over a month ago… Are these companies on time with their build-outs? Are they attaining the yields they purport? Did they have to destroy crops because of Health Canada violations that were then buried in filings?

These are the questions that need to be asked of companies that are fetching multibillion-dollar market caps with scant sales.

I don’t know if the claims against Aphria are true.

But I know two things…

One, Aphria was once a leading cannabis company and thought to be one of the leading targets of acquisition by a major consumer brand. The report out this week has changed that.

Two, Jimmy has just put together a list of five companies he believes will be the next companies bought out by major beverage and tobacco companies.

You can get that list of vetted cannabis buyout candidates here for the first time today.

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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