(Bloomberg) — Beleaguered cannabis producer Aphria Inc.’s chief executive officer is stepping down following short-seller allegations that have hit the company’s stock.
CEO Vic Neufeld and co-founder Cole Cacciavillani “are both nearing the end of their five-year journey with the company and will transition out of their executive roles over the coming months but remain on the board,” the company said in a statement Friday.
Newly appointed chairman, Irwin Simon and President Jakob Ripshtein, who joined the company from Diageo Plc in May, will “complete a smooth and responsible transition to a globally-minded executive leadership team,” the company said.
The leadership transition comes after short sellers Hindenburg Research and Quintessential Capital Management sparked a plunge in Aphria’s shares last month after alleging the company bought assets at inflated prices from insiders. Quintessential tweeted Friday that the changes “clearly vindicate our short thesis. With a new management team the company has a chance to a brighter future and we are accordingly moving on to new projects.”
The stock lost more than 50 percent of its value after the Dec. 3 report but has since recouped much of that, including a 6.2 percent gain to C$9.25 at 11:15 a.m. in Toronto.
“It was just time for us to move aside,” Neufeld said on the company’s earnings call Friday. “This has nothing to do with the short sellers’ report, the review, the valuation of assets.”
Simon, Aphria’s newly appointed chairman reiterated that and called Neufeld and Cacciavillani “consummate entrepreneurs.” He added, “the Aphria dream would not have become a reality without them.”
Cacciavillani is Aphria’s second-largest shareholder with about a 2.9 percent stake while Neufeld has about a 0.8 percent holding, according to data compiled by Bloomberg.
Aphria has appointed a special committee to review the allegations, which is “making good progress,” Neufeld said. He added that it will take longer than “days” for the committee to release its findings.
Aphria is also the target of a proposed C$2.8 billion hostile takeover bid by Green Growth Brands Inc., which has raised further questions about connections between the two companies. Neufeld said Friday that an independent committee of directors with no relationship to Green Growth will review any formal offers.
Aphria reported revenue of C$21.7 million ($16.4 million) for the quarter ended Nov. 30, up 63 percent from the prior quarter but below the average analyst estimate of C$28.8 million. Net income was C$54.8 million or C$0.22 per share, compared with C$0.09 a share last quarter, with the increase related to gains on its long-term investment portfolio.
Cannabis sales rose 92 percent to 3,409 kilogram equivalents, with more than 1,900 kilograms of that sold to the Canadian recreational market after pot was legalized on Oct. 17. However, its average selling price fell to C$6.54 per gram from C$7.12 in the prior quarter due to lower average prices in the recreational market compared with the medical market. As a result, adjusted gross margin fell to 47 percent from 64 percent in the prior quarter.
The company said it expects to produce 255,000 kilograms of pot by the end of 2019, up from 35,000 kilograms currently, as new facilities come online. This is later than originally expected due to a backlog at Health Canada, which issues licenses to the industry.
(Updates with comments from conference call, Quintessential tweet.)
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Aphria Inc. shares were trading at $6.98 per share on Friday morning, up $0.40 (+6.08%). Year-to-date, Aphria Inc. (APHA - Get Rating) has gained 22.67%, versus a 3.25% rise in the benchmark S&P 500 index during the same period.
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