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Aphria Inc (NYSE:APHA): We Told Ya So!

Aphria Inc (NYSE:APHA): We Told Ya So!
Written by
Alex Carlson
Published on
December 19, 2018
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After this month's short attack on Aphria Inc (NYSE:APHA), we came out and said that it was a "buy the dip" opportunity. As we said on December 4th:

While Aphria could see more selling pressure over any uncertainty, we believe that the shortseller’s report is more smoke than fire. We did not see a smoking gun that would make someone panic sell their stock...Overall, we believe the long-term story is intact for Aphria and the current selloff is a “buy the dip” opportunity.

Now, Citron Research has issued a report backing up our research. Citron has covered a lot of ground and it's clear that Aphria is a unique opportunity thanks to the shortsellers.Here are some highlights and what investors need to keep in mind regarding Aphria.

  • After Altria invested in Cronos, of the big LPs, the only options for a big player are Aurora, Tilray, or Aphria.
  • Aphria is a real company with growing operations, distribution, partnerships, and R&D.
  • Aphria did $33m in revenues last year and is on track to add 240 million grams of production capacity.

Here's what we see as the most important part of the Citron report.

Aphria generated 4x the revenue of Cronos in the last twelve months, Altria bought a 45% stake in Cronos for US$1.8 billion, and the EV of Aphria today is US$1.2 billion.
So let's say the shortsellers are correct and that CEO Vic Neufeld has been asleep at the wheel and Andy DeFrancesco has pulled the wool over his eyes in Latin America. It doesn't matter. The value of Aphria's core business more than makes up for any missteps there. For a big player like Diageo or Coca-Cola, Aphria checks all the right boxes for expansion into the space. They can then clean house and reshuffle management.Is Aphria taking the shortsellers report seriously? Absolutely!

Aphria is conducting an investigation led by John M. Herhalt, an independent director to Aphria who was the Global Chair of the Government & Infrastructure Practice at KPMG LLP. He will get to the bottom of whatever transpired with the Latin America acquisitions. If there was fraud involved, Aphria will have the resources to go after any monies paid. While it will be time-consuming, efforts are being made to right the ship.An unexpected curveballWhat was also intriguing about the Citron report is that they elude to the possibility that Canopy, Aurora or Tilray will acquire Aphria. In our opinion, Tilray makes the most sense because they need to justify their sky-high valuation. Aphria has more revenues than Tilray and brings an established LP into the Tilray fold.Bottom LineAphria is bidding up above $6 in the pre-market after rising over 7% on Tuesday. If a deal were to happen, it will be at a much higher price than $6. All we can say right now is that "we told ya so" and to grab your popcorn. The next few weeks shall be interesting.We will be updating our subscribers as soon as we know more. For the latest updates on APHA, sign up below!Disclosure: We own shares of APHA after making a purchase after our last article. We have not been compensated for this article.Image courtesy of Pexels

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