Aphria’s ups and downs in 2018, including the big short

Aphria had an incredible year, so let’s take a look at all the things this company accomplished in 2018.

As 2018 comes to an end, it’s time to do our yearly review of cannabis producers in Canada, and this year we’ve chosen to review 4 companies:

  1. Tilray
  2. Aphria
  3. Canopy Growth
  4. Aurora Cannabis

In today’s article we’ll cover Aphria as the company has seen tremendous ups and terrifying downs. Despite all that, they’re still making headway.

This company is well known among investors in Canada for boasting with the ability to produce cannabis for less than $1/gram, which is something nobody has reached yet. Let’s take a look at how they plan on accomplishing that.

Fund raising

In order to understand how Aphria managed to pull off all those acquisitions in 2018 we’ll have to go a bit further back. We are going to take a look at the last 2 months of 2017.

In November and December of 2017, Aphria had arranged for two very large bought deals:

  • November: 12,689,675 shares for C$92,000,144 (at a price of $7.25)
  • December: 8,363,651 shares for C$115,000,000 (at a price of C$13.75)

As you can see, Aphria raised somewhere in the vicinity of C$200 million just in those two months.

Six months later Aphria announced another huge deal worth over $250 million. The company sold 21,835,510 shares at a price of $11.85 per share.

In late July Aphria took out a five-year loan worth $25 million in debt financing from WFCU Credit Union.

On October 30, Aphria released an announcement saying that the company is getting ready to apply to the New York Stock Exchange and will commence trading effectively on the open of markets on November 2, 2018.

Supply deals

Early this year, Aphria managed to get several major supply deals and announced that they will be able to put out 255,000 kg of cannabis in early 2019.

So, having that number in mind, they went out and made a slew of supply deals, both local and global.

The first two supply deals were signed with following provinces:

  • Quebec for up to 12,000kg of cannabis flower and oil
  • Manitoba for 2,700kg of dried flower, pre-rolls and cannabis oils

A little later, in July, Aphria got into an agreement with two more provinces.

  • Alberta for 850kg of dried flower, pre-rolls and cannabis oils
  • British Columbia for 5,000kg of dried flower, pre-rolls and cannabis oils

Perhaps the biggest deal Aphria made this year was with Ontario. According to the details of the deal, Aphria was to supply the OCS with a wide variety of adult-use brands, including Solei, Broken Coast and a few other Ontario-based brands.

By September, Aphria announced that it has set up supply agreements with all provinces, as well as Yukon.

The company also had a deal with Emblem in which Aphria was to supply them with cannabis for 5 years, in the following manner:

aphria emblem supply deal
Seeing how Emblem just merged with Aleafia, we are yet to see how this deal will play out.

Foreign supply deals

Aphria’s first foreign deal of the year was when they signed with an Argentinean pharmaceutical import and distribution company, which has a license to import, sell and distribute medical products and derivatives in Argentina.

In March, Aphria got its GMP (Good Manufacturing Practice) certificate. This allowed Aphria to ship worldwide and the first foreign shipment went to their Australian partner Althea. Aphria managed to complete the second shipment later in the year.

On the South American frontier, Aphria managed to chalk down two deals:

  • An exclusive supply agreement with Colcanna SAS
  • A letter of intent to supply Paraguayan Insumos Medicos

The last move the company made on the South American market was a cooperation agreement regarding the cultivation of cannabis with Argentinean Cannava.

By the end of the year, the South American frontier will have caused Aphria way more trouble than anything else before, but we’ll get to that a bit later.

Acquisitions and investments

Having mentioned the tremendous amount of cash Aphria managed to raise by the end of 2017 and in early 2018, they were due to spend some of it as well.

Perhaps the biggest move this year was the acquisition that put Aphria on the market as a buy-now brand, and not just as a good investment for the future.

Yes, we’re talking about the Broken Coast acquisition. By the time Aphria decided to acquire them, Broken Coast was already one of the highest rated medical cannabis producers in Canada.

Broken Coast is known for its high-quality cannabis which sounds even more promising combined with Aphria’s low cost of growing.

Aphria paid $217 million CAD for almost all issued and outstanding Class A common shares.

Two weeks after closing this deal, Aphria announced another acquisition. This time, Nuuvera was on the acquisition block. Two companies closed the deal two months later, evaluating Nuuvera at approximately $826 million.

By acquiring these two licensed producers Aphria became among the top global leaders in medical cannabis production and technology.

Foreign investments

Since the two domestic deals weren’t structured as cash deals (the majority of the value was covered through a stock payment), Aphria had a lot more money to spend.

Throughout 2018 Aphria invested and divested from several foreign companies.

They expanded to Australia by making an investment in Althea. Aphria would go on to deliver 2 shipments of medical cannabis to Althea.

Soon after, Aphria started divesting its investment in the Liberty Health Sciences. The company sold its 26,716,025 shares of Liberty Health Sciences Inc. to Michael Serruya, Simon Serruya, Jack Serruya, and an affiliate of Delavaco Capital.

Sometime later, Aphria’s German subsidiary bought a 25.1% interest in Berlin-based Schöneberg Hospital in an acquisition valued at €1.2 million.

Aphria also partnered with Schroll Medical, a subsidiary of prominent European flower producer, Schroll Flowers.

In mid-July, Vic Neufeld announced the expansion to the Latin American market. Aphria was to enter the LATAM market in the following manner:

  • By acquiring 90% of Colcanna, a Colombian medical cannabis producer
  • By acquiring 100% of ABP, an Argentinean pharmaceutical company
  • By acquiring 100% of Marigold Acquisitions which owned 49% of Marigold Projects Jamaica LTD
  • By owning the Rights to purchase 50.1% of a Brazilian incorporated entity upon receiving a license

Aphria closed all LATAM acquisitions by late September.

Lastly, the company managed to acquire CC Pharma and further enhance its foothold in the German market. CC Pharma is a leading distributor of pharmaceutical products to more than 13,000 pharmacies in Germany.

The Big Short

Perhaps the most significant moment that happened to Aphria in 2018 was the successful short attack on the company which happened in early December.

Ever since getting listed on the NYSE, Aphria has seen a lot of movement on the stock market. However, the general trend was negative.

Then, on December 3rd, Gabriel Grego presented his case against Aphria.

Grego went hard on Aphria, accusing them of overpaying for foreign assets, and basically lying to their shareholders so that company insiders would line their pockets.

The massive selloff began. Aphria’s stock fell down to $5 USD at one point, and that’s after the insiders bought over $3 million worth of Aphria shares as a show of faith.

The water is still murky as Aphria never released any concrete rebuttal, but only a few short ones. One of them only said that the company stands by its LATAM acquisitions.

It’s been over 20 days since the short-attack and the company’s stock has started climbing up. It’s been trading mostly between $7 and $8 dollars since.

Categories News

Leave a Comment

Please confirm your age

Are you over 19 years of age (over 18 in Alberta and Quebec)?

By entering, you agree to Greencamp's Terms of Service and Privacy Policy.