Two key executives are departing cannabis producer Aphria Inc., which has seen its shares tumble in the wake of recent short-seller allegations questioning the value of some of its foreign assets.
Aphria’s CEO Vic Neufeld and co-founder Cole Cacciavillani will leave their executives roles “over the coming months,” ending a five-year journey for both at the Leamington-based company.
They will eventually hand over leadership to Aphria’s current president, Jakob Ripshtein, and former Hain Celestial founder Irwin Simon, who was recently appointed independent chairman of the company. No definitive dates have been set for the transition, the company confirmed.
“The last five years have been incredible. But to be brutally honest, this journey has taken a toll on my health, family and other priorities,” Neufeld said, in an earnings call Friday morning. Both Neufeld and Cacciavillani will remain on the board after their respective departures, in the role of special advisors to the company.
Neufeld’s role as CEO began to come under investor scrutiny in early December, when short sellers Hindenburg Research and Quintessential Capital Markets put out a report accusing the CEO, along with other Aphria insiders, of participating in a scheme to benefit themselves through the purchase of a number of the company’s Latin American assets.
The report also questioned the value of those assets and the amount of money Aphria had paid to acquire them.
One of the targets of the short report was dealmaker and private equity investor Andy DeFrancesco, who the short sellers suggest masterminded the series of transactions that saw Aphria acquire its Latin American assets.
DeFrancesco, who described himself as a “close confidante and major shareholder” of Aphria, played a key role in the founding of the company in 2014.
But in a series of texts to the Financial Post Friday morning, he appeared to be critical of Neufeld, applauding his decision to depart.
The last five years have been incredible. But to be brutally honest, this journey has taken a toll on my health, family and other priorities
“Vic did some good things … in the earlier part of the CEO tenure, but was not the guy to take the company to the next level and doesn’t have the right capital markets experience,” DeFrancesco said. “Clearly there were deals that were highly anticipated that didn’t happen for whatever reason and the CEO needs to take responsibility.”
Neufeld could not be reached for comment in response to DeFrancesco’s assessment of his tenure.
DeFrancesco, who is also the Chairman and Chief Corporate Officer of SOL Global Investments Inc., formerly known as Scythian Biosciences Inc. — where Neufeld was former Chairman of the Board — did not seem to level the same amount of criticism toward Cacciavillani, who co-founded Aphria along with John Cervini. “Cole and John built an incredible foundation so seeing Cole depart is emotional,” he said.
Cacciavillani and Cervini did not respond to requests for comment.
Vic … was not the guy to take the company to the next level and doesn’t have the right capital markets experience
The company did not provide a definitive timeline on when the results of a special independent committee — appointed to review and assess the short-seller allegations — would be released.
“It has taken some time but it is what it is. There’s a lot of work to be done, as there are a lot of false allegations that need to be addressed with third-party corroboration,” Neufeld said.
Aphria also reported its second quarter 2019 results on Friday: Revenue for the quarter ending Nov. 30 was $22 million, which came from the sale of 3,409 kilograms of cannabis. The company sold 1,900 kilograms of cannabis to the Canadian recreational market, with the balance of total sales going to foreign markets like Germany and the domestic medical market.
The company’s medical cannabis sales declined slightly from 1,466 to 1,443 kilograms in the quarter, which it says reflects the higher percentage of dried bud sold in the adult-use market.
Aphria also posted net income of $55 million, which it attributed mainly to the sale of shares of Hiku Brands Company Ltd., and Liberty Health Sciences Inc.
On the earnings call, Aphria’s chief financial officer Carl Merton said the company is still “confident” that it would be able to expand its total harvest capacity to 255,000 kilograms annually, pending licensing from Health Canada for the expansion of its Leamington facility.
Aphria’s annual production capacity is currently 35,000 kilograms — it had expected to reach the 255,000 kg number last November, but blamed Health Canada’s licensing backlog for the failure to significantly increase production capacity.
In response to a question by GMP Securities Inc. analyst Martin Landry on the licensing delays, Neufeld said Health Canada hadn’t yet visited the site of Aphria’s greenhouse expansion to inspect and certify it to begin production. “I’m not going to give you a date, but we are expected to receive the license for production in a timely fashion for our Part 4 expansion. And then we’ll have a 14-week lag time from seed to sale,” Neufeld said.
Merton added the scaling delays would affect the company’s quarter-to-quarter financials, but reiterated the company’s commitment to meeting a 255,000 kilogram annual run-rate by the end of 2019.
Aphria’s executives also confirmed they had not received an active acquisition offer from American cannabis retailer Green Growth Brands, which announced a planned hostile bid in late December. Neufeld said that shortly after the planned bid made headlines, Aphria created an independent committee to “assess and evaluate any other bids that came to the table” consisting of no one with a “direct or indirect relationship to Green Growth Brands.”
The same short sellers that accused Aphria of overpaying for its Latin American acquisitions recently cast suspicion on Green Growth’s planned bid for Aphria alleging a number of conflicting relationships between Green Growth’s shareholders and Aphria executives.
A Green Growth Brands spokesperson told the Financial Post that CEO Peter Horvath was not available for comment on the matter.
Investors appeared to react favourably to the news of Aphria’s executive management transition plans and revenue numbers for the quarter — the company’s stock jumped almost seven per cent in Friday morning trading.