AphriaeconomicsGabriele GregoGames

The Man Who Brought Down Follie Follie Has A Massive New Short

The Man Who Brought Down Follie Follie Has A Massive New Short

Forward of his subsequent huge epic brief at the moment , Aphria, at Kase shortselling convention  (keep tuned for rather more protection) we spoke to Gabriele Grego, founding father of Quintessential Capital. Gabriele made worldwide headlines when his brief thesis towards Follie Foolie virtually immeditaely  led to the top of the Greek based mostly firm. Listeners can discover the complete audio embedded under or right here. For subscribers we’ve your complete interview transcribed on ValueWalkPremium.

Immediately the famed shortseller has unveiled an enormous new guess towards a US based mostly agency. ValueWalk obtained an embargoed copy a couple of minutes early and continues to be studying by means of it, however this isn’t a valuation problem and even enterprise mannequin however critical allegations of alleged fraud. Readers can discover all the thesis under within the meantime.

What do readers assume – will this be one other Folli Follie or an enormous nothing? Inform us within the feedback!



Abstract:  Aphria Inc (NYSE:APHA)

  • We’re of the robust opinion that Aphria is a part of a scheme orchestrated by a community of insiders to divert funds away from shareholders into their very own pockets.
  • Aphria’s current C$280m Latin American acquisitions increase main purple flags. Our in depth on-the-ground analysis exhibits that the transactions look like largely nugatory.
  • Instance: The official registered workplace of Aphria’s C$145m Jamaican acquisition is an deserted constructing that was bought off by the financial institution earlier this yr.
  • Instance: Aphria’s C$50m Argentine acquisition publicly boasted gross sales of US$11m in 2017. A employee on the firm, nevertheless, affirmed that 2017 income was solely US$430okay.
  • Paperwork present that Aphria insiders have been possible undisclosed beneficiaries of those offers. We observed what look like systematic makes an attempt to cover the true nature of those transactions. For instance: altering the names of the shell corporations concerned in a approach that makes it more durable to hyperlink them to Aphria’s insiders.
  • These M&A transactions are totally financed by copious and dilutive share issuance. We estimate that Aphria has diverted upwards of C$700m by way of such transactions, or about 50% of Aphria’s complete internet belongings.
  • Aphria persistently generates unfavourable money, and its hashish appears to be of low high quality. Interviews with sources describe amenities infested with bugs, stricken with mould, and having failed audit inspections.
  • As a result of Aphria generates a minimal quantity of gross sales relative to its market cap, we consider that the uncovering of this alleged scheme, coupled with an enormous asset write-off, would have catastrophic penalties for its share worth.


Any time an thrilling new business attracts widespread consideration it additionally attracts retail capital, which in flip can draw unscrupulous actors. This isn’t a narrative concerning the hashish business and its business potential, neither is it a narrative about valuations and aggressive market dynamics. That is merely about one of many bigger corporations within the business that seems to have diverted an incredible sum of money towards the personal pursuits of its insiders on the direct expense of its public shareholders.

Background on Co-Writer Quintessential Capital Administration (QCM)

We’re proud to convey you this report along side QCM. QCM has an unparalleled monitor report in figuring out and exposing company malfeasance by way of deep investigative due diligence.

QCM’s final report was revealed in Might of this yr, and targeted on Greek retailer Folli Follie. The report alleged widescale inflation of income. Following publication, FF’s inventory dropped 60% in two days and was suspended two weeks later. In July 2018, the corporate filed for cover from collectors by way of the Greek chapter code. Administration is now dealing with legal expenses and shares haven’t resumed buying and selling.

Previous Folli Follie, QCM revealed a report on Globo PLC, a supplier of enterprise mobility administration software program and providers. Globo’s inventory was suspended in lower than 12 hours, and administration confessed to accounting fraud inside 48 hours of publication. Globo by no means re-opened for buying and selling and was declared nugatory by the liquidator.

Background: Aphria’s Nuuvera Scandal

Earlier this yr, Aphria got here beneath scrutiny after we uncovered undisclosed insider self-dealing referring to the corporate’s $425 million acquisition of Nuuvera.

Aphria / Nuuvera Acquisitions

We had written that Nuuvera seemed to be a nugatory artifice designed to complement insiders on the expense of Aphria’s buyers. The firm later admitted that its executives and administrators had undisclosed stakes in Nuuvera previous to Aphria’s acquisition, together with a key deal associate named Andy DeFrancesco.

Aphria / Nuuvera Insider Disclosure Failure

The firm traded decrease by about 30% within the weeks following the exposé and the next admission. Following the episode, the corporate responded by reassuring buyers that the newly acquired worldwide belongings have been of nice worth. They additional tried to assuage investor considerations by including compliance personnel and saying governance reforms referring to its funding insurance policies. The inventory has largely recovered since that time and had even reached new highs in September.

Introduction: They’re at It Once more—The LatAm Transactions

Regardless of the introduced governance reforms, our analysis exhibits that Aphria’s insiders have doubled down on their questionable investments:

Aphria lately spent over C$280 million on almost nugatory Latin American acquisitions that seem to have clear indicators of insider self-dealing.

We carried out in depth on-the-ground due diligence in Jamaica, Colombia, and Argentina and can current proof that the newly acquired asset values look like vastly inflated or outright fabrications.

We may even current paperwork displaying that the identical Aphria advisor who had described himself because the “architect” of the Nuuvera deal, Andy DeFrancesco, was an undisclosed backer of this newest slew of offers. DeFrancesco effected the transactions at the side of Aphria Chairman/CEO Vic Neufeld, who additionally served as Chairman of Scythian Biosciences (just lately renamed Sol International Investments), one other firm integral to the execution of those ‘LatAm’ offers.

All informed, the impact has been large. We estimate that at the very least 50% of Aphria’s C$1.46 billion in internet belongings have been diverted to ‘investments’ which might be, at greatest, grossly inflated. Our breakdown of those stability sheet belongings is as follows:

  • C$524 million in goodwill which we consider is totally nugatory;
  • C$246 million in intangibles, which incorporates licenses, permits, and “brands” acquired from these dealings, that we estimate are inflated by 80%+; and
  • C$86 million in fairness investees and long-term investments which we consider are the product of related-party offers and are considerably impaired.

Aphria Cash Flow(Supply: Cap IQ)

Following a assessment of the LatAm offers, we’ll then discover the background of Andy DeFrancesco, together with his run-in with Canadian regulators and his shut enterprise ties to people that the SEC has alleged to have engaged in a number of pump and dump schemes, together with Bobby Genovese, Barry Honig, John O’Rourke, and John Stetson.

Aphria & Sol Global Investments Andrew DeFrancesco(Andy DeFrancesco. Supply: DeFrancesco’s Instagram Account)

Lastly, we’ll evaluate Aphria’s hashish enterprise. Whereas the corporate declares itself to be “setting the standard” for low-cost manufacturing, in actuality it seems to be setting the usual for low-quality manufacturing. We share the content material of an interview with a former employee who detailed failed audits with Well being Canada, a circus-like setting, and a facility that has had repeated points with mould and is “infested with bugs”. We additionally share the content material of our interviews with business specialists, all of whom corroborated the low-quality nature of the product.

With obvious pink flags referring to its funding actions, strongly destructive historic money move, and a low-quality hashish product, we expect Aphria’s inventory goes to get smoked.

Half I: The Uncommon Construction of Aphria’s ‘Acquisitions’

We consider Aphria has diverted shareholder belongings to insiders by means of a scientific course of:

  1. Aphria insider Andy DeFrancesco units up or acquires a world firm, offering a token justification for an acquisition (e.g., conditional hashish licenses, a leased facility, buying a small present native enterprise.)
  2. The worldwide firm is then bought by a Canadian shell firm beneath the management of DeFrancesco by means of his intently held personal fairness agency, the Delavaco Group.
  3. The shell firm agrees to be acquired by Aphria’s ‘sister’ firm, Scythian Biosciences, the place Vic Neufeld, Aphria’s Chairman/CEO, and DeFrancesco maintain key insider roles.
  4. Scythian then sells its stake within the entity to Aphria at a big markup.
  5. Consequently, DeFrancesco and unnamed associates get money and/or Scythian shares, Scythian will get money and/or Aphria shares, and Aphria’s shareholders get worldwide belongings which are primarily nugatory.

See under for a way this course of has performed out with Aphria’s current LatAm investments:

Aphria LatAm Transaction(Sources: Scythian/Aphria filings & press releases, Canadian company data, and on-the-ground analysis)

Undisclosed Insider Self-Dealing?

The architect of those offers, as we’ll present, seems to be Aphria/Scythian insider Andy DeFrancesco. DeFrancesco was integral to the formation of each Aphria and Scythian, serving as a founding investor and orchestrating the reverse-mergers that took each corporations public. He has served as advisor to all of Aphria’s purchased deal financings, and at present serves because the Chairman and Chief Funding Officer of Scythian. In truth, earlier this yr Scythian even operated out of the identical workplace and suite variety of DeFrancesco’s private personal fairness agency, the Delavaco Group.

Our first main indication that one thing is amiss got here via the next revelation: Canadian company data present that the entities acquired within the LatAm deal have been all beforehand named after DeFrancesco’s private personal fairness agency, the Delavaco Group:

It seems that efforts have been made to hide the connection to Delavaco. The names to all of those entities have been modified previous to the acquisition bulletins, making certain that the “Delavaco” identify didn’t present up in any of the deal-related press releases. For instance, Canadian company data present that the identify of the entity holding purported Jamaican belongings was modified two days previous to Scythian’s letter of intent to accumulate it.

Briefly, cash has been flowing from retail buyers to Aphria, which has then used the capital to purchase “assets” from entities related to insiders.

So, let’s check out a number of the belongings.

Aphria’s C$145 Million Jamaican Acquisition: Marigold Tasks

In March 2018, Scythian signed a letter of intent to accumulate Marigold Acquisitions Inc., which was described as “a privately-held British Columbia corporation.” (pg. 24) On the time, Marigold Acquisitions was within the course of of buying a 49% stake in Jamaican firm Marigold Tasks. In different phrases, the entity didn’t even personal the Jamaican asset but.

4 months later (in July), Scythian then introduced the sale of the Marigold letter of intent together with their different LatAm “assets” to Aphria. Scythian accomplished its buy in mid-September and  subsequently closed the sale to Aphria 2 weeks later.

Finally, Aphria paid an estimated C$145 million for the Marigold stake, netting Scythian a C$127 million achieve for an asset it solely truly owned for about 2 weeks. (pg. 96).[1]

In the meantime, unnamed Marigold buyers within the “privately-held” shell entity have been paid C$18 million. We’ll current proof that these buyers embrace Aphria/Scythian insider DeFrancesco together with unnamed associates.

On the Floor in Jamaica: Marigold’s Official Registered Workplace is an Deserted Constructing

So, what precisely did Aphria purchase? We visited Jamaica to seek out out. Based on Marigold’s newest filings, the corporate’s official registered workplace is 28 Lancaster Street in Kingston St. Andrew:

Aphria / Sol Global Investments Jamaica Acquisition

When Aphria closed on its Latin American acquisitions it declared them to be “world class assets.” We visited the official registered workplace throughout working hours in late September and located it to be a world class dump. Right here we’re at Lancaster street:

Aphria / Sol Global Investments Jamaica Acquisition

And right here we’re at 28 Lancaster. Very similar to Aphria’s acquisitions, from the surface it virtually appeared satisfactory:

Aphria / Sol Global Investments Jamaica Acquisition

However from the within it turned apparent that the constructing had been deserted for years:

Aphria / Sol Global Investments Jamaica AcquisitionAphria / Sol Global Investments Jamaica Acquisition

Aphria / Sol Global Investments Jamaica Acquisition

Busted doorways and ceilings. Holes within the wall. Yellowed newspaper on the ground. Dust in all places. Not precisely the cutting-edge operation we’d anticipate.

Marigold’s much-touted managing director, Lloyd Tomlinson, lists the identical deserted property as his private handle:

Aphria / Sol Global Investments Jamaica Acquisition

Following our go to, we checked Jamaican actual property data and discovered that neither Tomlinson nor Marigold even personal the deserted property anymore. Tomlinson was the proprietor nevertheless it was bought off by the mortgage lender in January:

Aphria / Sol Global Investments Jamaica Real Estate Records

Regardless of this, Marigold and Tomlinson’s current filings nonetheless listed the deserted property as their present handle.

On the Floor in Jamaica: Marigold Claims to Have three Different Leases

Except for the deserted constructing, Marigold claims to have three leases in Jamaica (pg. 17):

Aphria / Sol Global Investments Jamaica Acquisition

We visited Marigold’s different properties as properly, or at the very least those we might affirm truly exist.

On the Floor in Jamaica: Marigold Claims to Lease “Unit 51” of a Constructing Complicated That Solely Goes as much as Unit 50

Marigold claims to lease an 800 sq/m herb home in collaboration with the Peter Tosh Museum situated at “Unit #51, Pulse Center, 38a Trafalgar Road, Kingston” (pg. 17). The firm claims to have leased the power as of April. (pg. 57) We visited the situation in October:

Aphria / Sol Global Investments Jamaica Acquisition Herb House

We spoke with the owner throughout our website go to. He knowledgeable us that the models solely go as much as 50. In different phrases, Marigold’s “Unit 51” didn’t exist.

We then referred to as the museum later within the month. They couldn’t present us with contact info for Marigold, saying “they haven’t actually opened as yet.”

On The Floor in Jamaica: “Jamaica’s Leading Medical Cannabis Company”…Has a Paper Signal On The Door of its Empty Workplace?

Marigold additionally reportedly leased area in “Suite #6”  in an workplace constructing in Kingston Jamaica (pg. 17). The lease for the workplace was signed in April (pg. 57). Our investigator visited the location in October throughout enterprise hours on a number of events and located that whereas the lights have been on, no one was house. He spoke with the neighboring enterprise which stated that they had not often seen anybody enter or depart the workplace. Right here is the image of the locked, empty suite:

Aphria / Sol Global Investments Jamaica Office

Why does this “world class asset” have a paper signal on its workplace door 6 months into its lease? (Somebody may additionally need to cease by on occasion to water that dehydrated workplace plant):

Aphria / Sol Global Investments Jamaica Office

Right here was the corporate’s paper signage on the doorway to the constructing as properly:

Aphria / Sol Global Investments Jamaica Office

The firm’s different purported lease is for cultivation amenities on a plot of land in Saint Catherine parish. In response to the corporate, this land is meant to ultimately help greenhouses and a state-of-the-art analysis facility. After a lot looking, our researcher was unable to seek out the location. We have been subsequently unable to verify its existence.

On the Floor in Jamaica: Marigold’s Workforce of “Cutting-Edge” Scientists

When Scythian signed the letter of intent to accumulate a stake in Marigold in March 2018, one of many justifications for the transaction was Marigold’s robust scientific group:

“Marigold’s leadership in the cutting-edge science of cannabis cultivation and precision dosing brings added depth and prestige to an already strong team.”

Marigold’s Medical Physician Director Denies Ever Serving on Any Board, Let Alone Marigold’s

We reviewed Jamaican company data to see who was on Marigold’s workforce of prime scientists. One of many unique founding administrators of Marigold’s staff was Dr. Janice Simmonds-Fisher, one among two scientists related to the corporate:

Aphria / Sol Global Investments Jamaica Team

Dr. Fisher is a physician based mostly in Jamaica (and is a really good woman). We visited her workplace and spoke together with her. She denied ever having held any directorship positions at any firm, not to mention Marigold. The truth is, she later signed a doc testifying to this:

Aphria / Sol Global Investments Jamaica Team(Word: Dr. Fisher’s private info has been blurred)

Marigold’s Genetic Engineer. A Complete Unknown

Marigold’s different director-scientist was a person named Ray Anthony Chin, who was listed as Marigold’s “Genetic Engineer”:

Aphria / Sol Global Investments Jamaica Team

We visited Mr. Chin’s tackle at 7 Norbrook Crescent:

Aphria / Sol Global Investments Jamaica Team

The tenant stated nobody by that identify lives there they usually had by no means heard of anybody by that identify.

We searched extensively for indicators of a prime (or any) genetic engineer by the identify of Ray Anthony Chin by way of scientific journals, ResearchGate, net sources, social media, and so on. We got here up utterly empty handed. How has Mr. Chin managed to grow to be a prime scientist with out leaving a hint of his accomplishments?

On the Floor in Jamaica: The A lot-Touted Purpose for the Deal—A Native Hashish R&D License—Prices Solely $500 to Purchase

On the time of the deal announcement, a lot was additionally product of the truth that Marigold had been issued certainly one of three unique permits in Jamaica for the R&D of hashish merchandise.

We met with the Jamaican Hashish Licensing Authority (CLA) and discovered that by the point the Marigold deal had closed in September, the CLA had accredited at the very least 22 full licenses and over 80 conditional licenses.

Aphria / Sol Global Investments Jamaica Licenses

We requested concerning the course of for attaining a license. It requires about $500, some paperwork, and a wait time of lower than 6 months. That was principally it.

Jamaica: However Wait…Marigold Isn’t Even Absolutely Licensed!

Shortly after our go to, Jamaican media reported on Marigold’s cope with Aphria. Per the article, Marigold Managing Director Lloyd Tomlinson stated that Marigold plans to arrange 5 herb homes throughout Jamaica, “the first of which will open at the Pulse Centre.” In different phrases, none are open.

Moreover, Tomlinson stated that he would reserve full remark concerning the retail ganja enterprise:

“until all his licenses are issued by the Cannabis Licensing Authority.”

The article continued…

“…Marigold already has conditional approval for several licenses.”

“…The operation will be fed by a 20-acre farm at Bernard Lodge but could potentially source raw material from a farm operated as a separate business by the Tomlinson family within the Blue Mountains. That farm awaits approval to grow marijuana.”

So, somewhat than being licensed to function, Marigold is ready for its conditional licenses to be accepted.

Jamaica/Marigold: To Recap So Far…

  • The official workplace is an deserted property that was bought off by the lender virtually a yr in the past.
  • The firm claimed to lease a “Unit 51” that didn’t exist.
  • One of many firm’s founding administrators denies ever being an organization director.
  • The different thriller scientist has no clear net presence.
  • The firm’s plot of uncooked land is just not permitted to develop hashish.
  • The firm has conditional licenses and is awaiting full approval.

All this…for C$145 million? So, what’s going on?

Jamaica: Marigold Stakes Have been Initially Purchased for US $118 in Complete. Who Have been These Fortunate Shareholders?

The undisclosed Aphria/Scythian deal companions who bought their stakes in Marigold didn’t appear to assume the asset was value C$145 million.

Jamaican Company data present that two Canadians related to a number of DeFrancesco-backed offers had bought their shares of the Jamaican entity for about US $118 (not tens of millions) for shares that have been flipped to Scythian mere months later for C$18 million (and finally flipped to Aphria for C$145 million.)

The two people named in Jamaican company data have been Marvin Igelman and Clifford Starke.

Marvin Igelman’s relationship with Aphria/Scythian insider DeFrancesco spans greater than a decade, having labored collectively at brokerage agency Commonplace Securities Capital Company (SSCC) the place DeFrancesco had served because the Managing Associate:

Andrew DeFrancesco Marvin Igelman

Since then, Igelman has performed an lively position in DeFrancesco-backed offers together with serving as:

  • Vice Chairman of Delavaco-backed Breaking Knowledge Corp/Sprylogics,
  • Director of Delavaco-backed Jamba Juice, and
  • Director of Delavaco-backed American Attire.

Clifford Starke has been described as “an early stage investor and financier of Nuuvera Corp” previous to its takeover by Aphria. As famous in our earlier piece, we expect Nuuvera was simply as nugatory as Aphria’s different acquisitions. The deal had undisclosed conflicts of curiosity, together with possession by DeFrancesco together with Aphria Chairman/CEO Vic Neufeld, Aphria’s CFO, and a number of Aphria administrators.

Jamaica: The Low cost Shares Have been Owned by an Entity Previously Named After Aphria/Scythian Insider Andy DeFrancesco’s Agency

The shares have been later transferred to an opaque, newly-formed Bermudan entity. That entity, in flip, was owned by the Canadian shell entity that was previously named “Delavaco Caribbean Ventures”. Recall that Delavaco is the identify of the private personal fairness agency of Aphria/Scythian insider Andy DeFrancesco.

Following the identify change, Scythian introduced its letter of intent to accumulate the entity. The identify change happened solely 2 days earlier than Scythian signed its letter of intent to accumulate the entity on March 21st. Canadian company data captured the originals, nevertheless:

Aphria / Sol Global Investments Delavaco

Then 2 days afterward March 21st:

Aphria / Sol Global Investments Jamaican Acquisition

Take into account that along with DeFrancesco’s position, Aphria Chairman/CEO Vic Neufeld was additionally the Chairman of Scythian on the time of the introduced Marigold deal. This is identical Vic Neufeld who oversaw Aphria’s acquisition simply months later, finally paying C$145 million of Aphria shareholder cash for the Jamaican entity.

The shareholders of the personal shell entity in flip have been paid $18 million, which seems to have been virtually pure revenue.

Aphria’s C$50 Million Argentine Acquisition: A.B.P. SA

On March 11, 2018, Scythian signed a letter of intent to accumulate MMJ Worldwide, which was later described as “a privately-held British Columbia company” (pg. 24). MMJ Worldwide had an settlement to buy an Argentine firm referred to as ABP, a “pharmaceutical import and distribution company”.

4 months after Scythian’s letter of intent to accumulate the Argentine belongings, Scythian then introduced the sale to Aphria of the ABP letter of intent together with different LatAm “assets”.

Scythian closed its buy in late September and subsequently closed the sale to Aphria 6 days later.

Finally, Aphria paid roughly C$50 million for the ABP stake, netting Scythian a fast C$23 million achieve for an asset it solely truly owned for 6 days. (pg. three).[2]

In the meantime, buyers within the personal shell entity have been paid C$27 million for his or her stake in MMJ. We’ll present proof that these buyers embrace Aphria/Scythian insider DeFrancesco, together with unnamed associates.

On the Floor in Argentina: ABP’s “Strong” Retail Platform Consists of Precisely One Small Pharmacy

The firm has touted that “ABP has had a strong platform from its distribution and retail business to build on.”

Per Aphria’s transaction paperwork we see that ABP had 2 amenities in complete (pg. 74):

“ABP operates two facilities located in the City of Buenos Aires – a pharmacy that operates under the trade name Farmacia & Perfumeria and a wholesale drugs distribution centre, which also serves as a secondary warehouse for Farmacia & Perfumeria.”

Thus the “strong” retail platform consisted of precisely one pharmacy. Here’s a image of the surface of the pharmacy, courtesy of Google Maps:

Aphria / Sol Global Investments Argentina Acquisition

We visited the location. It’s situated in a rundown part of Buenos Aires and is smaller than a standard CVS or Ceremony-Assist. Listed here are footage from the within and a receipt confirming ABP’s identify on our buy:

Aphria / Sol Global Investments Argentina Acquisition

On The Floor in Argentina: A “Leading Importer and Distributor of Pharmaceuticals”…With an Empty, Dilapidated Workplace

On the time of the deal announcement, Vic Neufeld was Chairman/CEO of Aphria and the Chairman of Scythian. He referred to as ABP “one of the nation’s leading importers and distributors of pharmaceuticals.”

We visited ABP’s “wholesale drugs distribution centre”. The space was largely dilapidated and residential. Here’s a image of the doorway from Google Maps alongside an image from our go to:

Aphria / Sol Global Investments Argentina Acquisition

On the within, we noticed virtually no indicators of present operations, apart from one lone desk and a few stacked packing containers in what seemed like an unfinished, empty warehouse:

Aphria / Sol Global Investments Argentina Acquisition

ABP: Nearly No Digital Presence and a Handful of Staff

As a part of our analysis on ABP, we referred to as the corporate, visited its workplaces, and scoured the online for any indicators of a enterprise presence. We noticed nearly no digital indicators of life and located only a few staff.

Oddly, ABP’s Fb web page exhibits that its first publish was in August, 5 months after the cope with Scythian was introduced. The web page had 7 likes as of this writing.

All advised, we have been solely capable of find three precise staff of ABP, excluding retail employees. Two of them have been school college students:

  1. The supervisor, Gonzalo Arnao, seems to be to have precise laboratory expertise, in response to his Linkedin profile.
  2. The second recognized worker reviews on his LinkedIn that his essential occupation is a college scholar.
  3. The third recognized worker is a 20 yr previous who lists his occupation as soccer participant/coach on his Fb web page.

Firm Press Launch: ABP Generated “Revenues in Excess of USD $11 Million in 2017”


Worker Interview: Revenues Have been Truly USD $430 Thousand

Within the preliminary press launch by Aphria’s ‘sister’ firm Scythian saying the letter of intent to accumulate ABP, the header of the press launch boasted:


The headline quantity struck us as odd provided that the corporate’s operations appeared to consist of 1 small retail pharmacy and an empty, unfinished warehouse. We checked Dun & Bradstreet which reported that annual gross sales on the entity have been solely roughly USD $212,000 which appeared extra in-line:

Aphria / Sol Global Investments Argentina Acquisition(Supply: Dun & Bradstreet)

We then spoke with worker #2 (from the part above) and recorded the decision. When requested about ABP’s annual revenues, he replied that they have been about 15 million Argentine Pesos, which converts to about USD $430,000.

On the Floor in Argentina: ABP’s Touted “Purchase Order” With a Native Hospital Was Truly a Donation

Previous to the closing of the acquisition of ABP by Aphria/Scythian, Scythian introduced that a main milestone had taken place on the would-be subsidiary:

“Scythian Announces ABP S.A.’s First Purchase Order with Aphria Inc.—Order to Supply World Renowned Pediatric Hospital for Research and Education”

The buy order was for Aphria’s CBD oil which might help medical analysis at Argentina’s famend Garrahan Pediatric Hospital.

“I am very proud of ABP working with the Scythian team for reaching this new milestone of a first purchase order…” gushed Scythian’s CEO within the press launch.

It was presupposed to be a serious achievement—an order for a big multi-year research involving over 100 sufferers. The newly-formed Argentine partnership appeared to be producing new gross sales, lending the proposed Aphria acquisition added credibility.

One drawback: We spoke with representatives of the hospital they usually knowledgeable us that they didn’t make any buy. It was truly a donation from the corporate.

The image on the fitting is of our assembly with Lucas Schiaffini, a division head on the hospital.

Aphria / Sol Global Investments Argentina Acquisition

Liable to belaboring the purpose, Merriam-Webster defines ‘purchase’ as ‘to acquire by paying cash or its equal”.

Whereas Scythian seemed that it had secured a serious multi-year buy contract, in actuality it was Scythian making the acquisition…from Aphria. The product in flip was given away free of charge to the last word shopper.

The hospital later confirmed this publicly. Per a press launch put out by the hospital (translated from Spanish):

“The medicinal cannabis used in these trials was provided by the Aphria laboratory in Canada, which will donate the drug throughout the study and for all patients in which it is proven to work.”

The hospital worker stated they have been grateful for the donation, however he complained to us that the corporate’s consultant in Argentina stored hounding them to concern extra press releases concerning the partnership.

Argentina: Undisclosed Insider Self-Dealing?

So, who have been the fortunate buyers within the “privately-held” shell entity that have been paid C$27 million for the Argentine belongings?

Canadian company data present that the shell entity was named Delavaco MMJ Worldwide however was modified previous to the general public announcement of the deal:

Aphria / Sol Global Investments Argentina Acquisition

As a reminder, Delavaco is the identify of Aphria insider & present Scythian Chairman Andy DeFrancesco’s private personal fairness agency.

If there’s nonetheless any lingering doubt about what’s going on right here, we will flip to Andy DeFrancesco’s personal Instagram account. That is an Instagram submit dated one week previous to Scythian’s announcement to accumulate the “privately-held” Argentine belongings:

Andrew DeFrancesco's Regretful Instagram Post

Sure, that’s Aphria insider, Scythian insider, and present Scythian Chairman & Chief Funding Officer Andy DeFrancesco bragging about buying ABP’s pharmacy into his personal private personal fairness agency one week earlier than flipping it to Scythian for C$27 million. He even hash-tagged #GreedIsGood.

We will affirm that it’s the very same pharmacy. Right here is the image from our go to of the identical part of the shop taken at a unique angle:'Oops why did I ever post this?' - (Probably) Andrew DeFrancesco

Aphria’s C$84 Million Colombian Acquisition: Colcanna SAS

In April 2018, Scythian signed a letter of intent to accumulate a Canadian entity named MMJ Colombia Companions, which was described in filings as “a privately-held Ontario company” (pg. 24). On the time of the announcement, MMJ Colombia was within the course of of buying a 90% stake in Colombia-based Colcanna SAS. In different phrases, Scythian entered right into a letter of intent to accumulate a “privately-held” entity that didn’t personal something but.

Scythian later bought the letter of intent together with their different LatAm “assets” to Aphria. Finally, Aphria paid C$84 million for the stake, netting Scythian a fast C$45 million achieve.

In the meantime, the unnamed buyers in “privately-held” MMJ Colombia Companions banked virtually C$39 million.[3] We’ll present proof that these buyers embrace Aphria/Scythian insider Andy DeFrancesco, together with unnamed associates.

Colombian Company Paperwork: Zero Working Exercise and Complete Belongings of $16,000

Colombian company data present that Colcanna was established on December 27, 2017, and was thus solely months previous when Scythian signed its letter of intent to purchase it. The newly shaped entity reported precisely zero working exercise and complete belongings value about US$16,000:

Aphria / Sol Global Investments Colombia Acquisition

On the Floor in Colombia: An Precise Workplace! However Not A lot Else

Colcanna has an workplace and a few property in Colombia. Listed here are footage from our investigator’s go to in mid-November. He stated there have been roughly 5 individuals working there:

Aphria / Sol Global Investments Colombia Acquisition

So far as improvement of the property goes, it doesn’t seem that a lot is occurring, nevertheless. The Colcanna web site contains a pilot greenhouse:

Aphria / Sol Global Investments Colombia Acquisition

The different footage from the web site are relatively underwhelming:

Aphria / Sol Global Investments Colombia Acquisition

Colombia: On Colcanna’s A lot-Touted Hashish Licenses—It Was One among About 73 Licensed Entities at Time of Deal Closing

A lot was product of Colcanna being the primary entity to obtain hashish licenses within the specific area of Colombia the place it’s situated:

“Colcanna is the first company in the coffee zone of Colombia with cultivation and manufacturing licenses for the production of medical extracts of cannabis”

Regardless of being first to obtain these licenses within the espresso zone, by late September 2018, close to the time of the Aphria deal-closing, Colombia had issued licenses to 73 totally different Colombian entities.

Relatedly, an business professional knowledgeable us that whereas Aphria was touting its espresso area licenses, different operators have been avoiding the area as a consequence of its local weather and circumstances. The professional defined to us that the espresso zones are usually not fascinating for rising hashish.  They’re too moist and funky, which is ok for espresso however can result in mildew issues in hashish. The mountainous areas are additionally naturally much less accessible, which will increase prices.

Colombia: However Wait…Colcanna Isn’t Even Absolutely Licensed!

When our on-the-ground investigator requested for details about shopping for Colcanna’s merchandise, the corporate rep stated they have been nonetheless within the licensing course of and that they don’t seem to be close to manufacturing.

An business skilled gave us the next perception on the important thing license Colcanna seems to be lacking:

“I don’t think Colcanna is one of the four companies approved to do characterization. This is a necessary requirement for cultivation.”

“…If the company doesn’t have a characterization license then it’s a huge red flag. I think the current government is in no rush to stimulate the industry. People are just twiddling their thumbs in the government departments at the moment.”

Colcanna has acquired a few of its required hashish licenses per Ministry of Justice and Ministry of Well being data, however till they obtain all their required licenses they seem like within the thumb-twiddling enterprise together with the native authorities.

Colombian Comparable Transactions: Aphria Overpaid Relative to Friends for Land/Licenses

When evaluating the acquisition worth of Aphria’s acquisition relative to different Colombian hashish producers we see that they stand out:

Aphria / Sol Global Investments Colombia Acquisition(Sources: Firm filings, firm press releases, and native specialists)

The hashish area is replete with debates about valuation, however placing that apart, the truth that Aphria’s buy stands head and shoulders above the remainder of the business speaks for itself.

Colombia: Undisclosed Insider Self-Dealing?

Who have been the shareholders within the privately-held shell entity that banked C$39 million for promoting a newly-formed, stalled Colombian operation?

Canadian company data present that two months previous to the Scythian announcement MMJ Colombia had a special identify: Delavaco Colombia Companions. Recall that Delavaco is the identify of Andrew DeFrancesco’s private personal fairness agency. Additionally recall that DeFrancesco is the present Chairman of Scythian and a key insider of each Scythian and Aphria. The entity was registered within the identify of DeFrancesco’s partner:

Aphria / Sol Global Investments Colombia Acquisition

The timing of the identify change appears prescient. Delavaco Colombia’s identify was modified on February 16, 2018—the very day that Colcanna acquired its first license for hashish R&D from the Colombian authorities, suggesting that the acquisition plan might have been set in movement upon receipt of the license  (pg. 54).

Aphria’s “Option” to Pay $24 Million+ for a Newly-Shaped Brazilian Entity Which Seems to Personal Nothing however a Pending License

On July 23, 2018, Scythian introduced a letter of intent to accumulate a stake in “Brazilian Investments Inc”, a personal British Columbia-based entity.

Canadian company data present that “Brazil Investments” had additionally undergone a reputation change. It was initially named “MMJ Brazil Investments” and was included solely on March 14, 2018. The identify was modified to the nebulous “Brazil Investments Inc” on June 15, 2018, a few month earlier than the introduced deal:

“The acquisition of LATAM provides the Company with an option to purchase 50.1% of a Brazilian entity for $24 million (USD), once it secures a medical cannabis licence from the Brazilian government and a right of first offer and refusal on another 20-39% of the Brazilian entity.” (Pg. 23)

Brazilian company data present that the last word goal, “Green Farma Brasil”, had informally operated as of early 2017 however had solely taken the step of legally constituting months after the introduced deal, on August 23, 2018:

Aphria / Sol Global Investments Brazil Option

The firm was shaped with capital value solely about US$27,000.

Thus, it appears that evidently Aphria bought an choice to purchase a just lately shaped entity with no recognized operations besides a pending Brazilian hashish license. For the sake of their buyers, we sincerely hope they don’t select to train this feature and shovel $24 million (or extra) into this new shell.

From the prior identify “MMJ Brazil Investments”, it seems to us that the corporate underneath choice by Scythian can also be associated to Delavaco based mostly on the naming conference used within the Colombian acquisition, which was named “MMJ Colombia Partners Inc” instantly previous to its acquisition.

Half II: Who is Andy DeFrancesco?

Andrew DeFrancesco is the Founding father of the Delavaco Group, a personal fairness and advisory agency based mostly in Toronto and Florida. His biography was lately faraway from the Delavaco website and his partner is presently listed because the Chairman and CEO of the agency.

Andy DeFrancesco’s Deep Relationship with Aphria

As described briefly above, Andy DeFrancesco has been a key determine with Aphria from the start.

Andrew DeFrancesco in a sea of Aphria cannabis(Supply: Andy DeFrancesco’s personal Instagram account)

DeFrancesco’s biography on the Delavaco web site said that he was “founding investor to Aphria, leading all rounds of financing and strategic advisor to the company since inception.” Regardless of the current removing of his biography, we will nonetheless see the unique via Net Archives, which additionally exhibits that he was previously listed as “Founder, Chairman & CEO” of the agency:

Andrew DeFrancesco deleted Delavaco profile

Further hyperlinks to Aphria embrace:

  • DeFrancesco’s Delavaco Group is known as as a “special advisor” to Aphria within the firm’s press releases referring to all of their bought-deal financings (1,2,three,four,5,6,7).
  • DeFrancesco’s personal fairness agency, the Delavaco Group, was the advisor in Aphria’s reverse-merger right into a shell entity named Black Sparrow Capital Corp. That transaction took Aphria public.
  • The COO of Delavaco Capital was the CEO and CFO of the Black Sparrow shell.
  • DeFrancesco was the self-described “architect” of the Aphria/Nuuvera deal which we beforehand recognized as being laden with undisclosed associated get together conflicts.

Andy DeFrancesco’s Deep Relationship with Scythian BioSciences (Now Renamed Sol International Investments)

DeFrancesco additionally has an in depth relationship with Aphria’s ‘sister’ firm, Scythian BioSciences/Sol International Investments:

  • Going again to the start, the “finder” of Scythian’s reverse-merger deal to take the corporate public was the COO of the Delavaco Group. The Delavaco Group is DeFrancesco’s private personal fairness agency.
  • Till just lately, Scythian’s head workplace was listed as 366 Bay Road, Suite 200, Toronto, the exact same handle and suite variety of DeFrancesco’s Delavaco Group Toronto workplace ( v).
  • Scythian’s former CFO, Jonathan Held, served within the position till late September. Held operates his consulting agency ALOE Finance out of the very same tackle and suite quantity because the Delavaco Group’s Toronto workplace.
  • In September, DeFrancesco was named Scythian’s Chairman of the Board and Chief Funding Officer. He’s now answerable for allocating Scythian’s recent batch of cash acquired from Aphria by way of the LatAm offers.

Briefly, DeFrancesco has performed an integral position with Aphria, Scythian, and the LatAm transactions as outlined above. We view him because the architect of those questionable transactions.

Now, we’ll discover his background and associations.

Canadian Regulators: DeFrancesco Has “Little Regard for the Truth”

A 2009 IIROC grievance talked about Andy DeFrancesco’s outstanding position in a scheme that led to the next business ban of a dealer. For context, IIROC is the nationwide self-regulatory affiliation for Canadian funding sellers, just like FINRA within the U.S.

IIROC’s grievance made a number of conclusions about Andy DeFrancesco and the dealer, who each labored at Commonplace Securities Capital Company (SSCC):

“Both the respondent’s and Andy DeFrancesco’s conduct in this matter showed they have little regard for the truth.”

“Andy DeFrancesco was deceptive in his conduct with respect to his wife.”

“He was deceitful to his employer, SSCC, in managing (a client’s) account by placing his own assets in her account.”

“Both the respondent and Andy DeFrancesco were involved with the SSCC new account application form of (the client) which contained the false signature of (the client).”

Per earlier SEC filings, DeFrancesco had served because the Managing Companion at SSCC, a agency that was the recipient of a number of regulatory sanctions (1,2,three,four). SSCC was ultimately absorbed by one other brokerage agency.

DeFrancesco’s Enterprise Ties to Barry Honig, Who SEC Prosecutors Allege to Have Engaged in A number of Pump and Dump Inventory Schemes

DeFrancesco has a number of shut enterprise pursuits with Barry Honig, a controversial financier who was lately alleged by SEC prosecutors to have orchestrated a number of pump and dump schemes.

SEC and Canadian data present that Honig and Andrew DeFrancesco (together with household accounts) have cooperated on a slew of offers, together with:

Riot Blockchain (previously named Venaxis Inc.): DeFrancesco’s partner reported a key possession stake in Venaxis Inc. and even joined Barry Honig in an activist marketing campaign to oust the prior board of administrators.

DeFrancesco advocated for Honig’s new director slate, which included John Stetson and John O’Rourke, two people who have been later alleged by the SEC to have participated in a number of pump and dump schemes together with Honig.

DeFrancesco Riot Blockchain Barry Honig

Venaxis later “pivoted” enterprise fashions a number of occasions, finally turning into Riot Blockchain. Paperwork present that DeFrancesco had a key position in Riot as nicely…

Riot Blockchain DeFrancesco Barry Honig(Supply: Cap IQ)

As we alleged in an earlier report, Riot at one level made an irregular acquisition that’s harking back to Aphria’s LatAm transactions: the corporate purchased gear by buying it by means of a newly-formed privately-held shell entity slightly than simply shopping for it on the open market. The gear value ~$2 million, however Riot paid ~$12 million for the entity, netting holders of the shell a roughly $10 million achieve in about 2 weeks.

So, who owned the shell? None aside from DeFrancesco’s partner along with Barry Honig (pg. 23).

DeFrancesco Riot Blockchain Barry Honig

Actual property: In response to Florida company data and actual property data, the pair additionally invested collectively within the very constructing the place Delavaco Holdings Florida workplace is headquartered:

Andrew DeFrancesco Barry Honig Real Estate

DeFrancesco / Delavaco’s Ties to a Stealth Inventory Promotion Ring

Delavaco was just lately named in an exposé by investigative reporter Chris Carey referring to an “army of writers, both real and imaginary” which have produced tons of of bullish articles on shoppers of investor relations agency IRTH and about corporations backed by Barry Honig. The article is entitled “Pretenders And Ghosts: Stealth Promotion Network Exploits Financial Sites To Tout Stocks.” Per the article:

“The stealth promotion ring began posting stories last year about companies with financial ties to The Delavaco Group… The touting ring has spotlighted at least four companies in The Delavaco Group’s investment portfolio: MassRoots, Aphria Inc., Liberty Health Sciences Inc., and Breaking Data Corp.”

DeFrancesco’s Enterprise Ties to Bobby Genovese, Who SEC Prosecutors Allege to Have Engaged in a Manipulative Penny Inventory Scheme

An SEC grievance filed August 2017 accused a person named Bobby Genovese of “a penny stock promotion, manipulation and unlawful distribution scheme”. The grievance was associated to an Ontario-headquartered and TSX-listed firm referred to as Liberty Silver Company.

The IIROC grievance talked about earlier offered perception into DeFrancesco’s enterprise relationship with Bobby Genovese. Per the grievance, DeFrancesco had apparently illicitly deposited shares right into a pretend shopper account as cost for “services rendered from past transactions” that he had carried out with Bobby Genovese.

In accordance with a 2010 deposition of Andy DeFrancesco in an unrelated matter, he equally referenced his enterprise relationship to each Bobby Genovese (and the banned dealer, Phil Vitug) (Pg. 27).

In sum, when reviewing DeFrancesco’s previous associations and regulatory run-ins, we view his position in Aphria’s irregular acquisitions as completely unsurprising.

Half III—Aphria’s Aspect Enterprise: Low-Value Low-High quality Hashish

As proven in our introduction, Aphria has devoted a lot of its money to worldwide ‘investments’

Aphria Cash Flow(Supply: Cap IQ)

Except for its questionable acquisitions, nevertheless, the agency has additionally made investments into its greenhouse operations in Canada which produce quite a lot of hashish merchandise.

The agency believes it has an edge within the aggressive manufacturing area. They’ve repeatedly touted their means to supply hashish at decrease money prices than rivals, which allows them to ship “one of the highest adjusted gross margin levels in the industry”.

We spoke with a former employee at Aphria’s facility which described the Aphria strategy in relatively totally different phrases:

“The motto should be quality over quantity, but it’s probably the other way around. It’s more quantity over quality.”

So far as administration:

“A lot of the people who are running the show are young, possibly not very experienced in what they are doing”

This has led to points akin to audit failures, mould, and bug infestations:

“We were constantly running into errors and not passing audits with Health Canada and having issues with bugs…it kind of became a bit of a circus.”

“We had a lot of issues with mold and right now the facility is infested with bugs.”

“Every single room that has product in it in that (Leamington) facility right now has bug problems.”

One other supply with expertise in Canadian and Colombian hashish corporations stated the next:

‘Aphria is a big company but is yet to deliver product. There is huge customer turnover. They get a lot of newbies to get prescriptions and get signed up, but first orders receive 3 times market value for low grade.’

It appears that evidently Aphria could possibly be sacrificing high quality and its long-term model with a view to generate momentary excessive margins. Regardless, the technique seems to be failing as Aphria just isn’t producing constructive money move from operations. A money-losing, poor-quality, low-cost operation doesn’t strike us as a profitable method.

Moreover, competitors is just intensifying as extra producers come on-line. Aphria had an early-mover benefit with its licensing and amenities, however that benefit dissipates with each new entrant. With their greatest occasions behind them we don’t assume Aphria will ever generate significant constructive money circulate from its Canadian rising operation.

The ‘Blunt’ Fact: Aphria is Uninvestable

All informed, Aphria’s worldwide deal spree has resulted in over C$700 million being deployed to its questionable “investments”. Together with the Brazilian buy choice this complete might attain over C$736 million:

Aphria's International Deal Spree(Supply: Firm filings, press releases, and consumer calculation)

We hope this info has been informative and has given readers a way of what’s going on at Aphria. We consider the conduct of Aphria’s executives and deal companions has been deeply unethical and probably legal. With a slew of extremely questionable transactions, unfavorable working money circulate, and a low-quality product, we finally see no credible path ahead for this firm.

We’ll depart it at that (for now).

Disclosure: We’re brief APHA.

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[1]  Notice: To reach at this quantity we apply the ultimate deal worth (based mostly on Aphria’s share worth at closing) to the share allotted to Marigold per the transaction’s formal valuation opinion

[2] Scythian bought MMJ Worldwide for six,176,320 shares of Scythian as of the closing worth on the date instantly previous to the time limit of September 21, 2018 Scythian’s closing worth on September 20, 2018 was four.35, therefore the transaction worth of 6,176,320 * four.35 = C$26,866,992

[3] See Scythian Biosciences Closes Acquisition of MMJ Colombia Companions which incorporates US$6,200,000 in money superior previous to deal closing, US$5,000,000 in assumed debt (each transformed to CAD at an trade price of 1.three CAD/USD, and C$24 million in Scythian shares.