Aphria Inc’s stock price has been cut in half since the beginning of the week, with a short-seller on Wednesday doubling down on his allegations and the Canadian pot firm receiving its first downgrade from Wall Street.
The cannabis company’s shares fell another 13 percent to close at C$5.11 in Toronto, bringing its three-day decline to 51 percent.
Other pot stocks fell in tandem, with Aurora Cannabis Inc losing 11 percent, Canopy Growth Corp down 9 percent and Cronos Group Inc falling 8 percent.
The rout came after a short analysis by Quintessential Capitas at the Kase Learning Shorting conference on Monday morning.
Quintessential founder Gabriel Grego told BNN Bloomberg that he expects the stock to go to zero.
“First of all, the company seems to be setting up, if our thesis is correct, for a giant asset write-off,” Grego said. “We believe they’re going to have a hard time raising new cash, and of course long-term the survival of the company depends on cash’s oxygen.”
Quintessential still has a “sizable” short position in Aphria, Grego said, adding that he is “quite eager” to defend his allegations in court.
His report claimed that Aphria paid inflated prices for companies held by insiders in Latin America.
Meanwhile, Eight Capital’s Graeme Kreindler cited uncertainty about Aphria following Monday’s allegations for his downgrade from “buy” to “neutral.”
He cut his price target 68 percent from C$22 to C$7 per share.
Aphria’s management team needs to make “significant strides” to rebuild trust and investor confidence in the market, Kreindler wrote in a research note, adding that he was uncertain with respect to future legal and regulatory issues.
The potential for Aphria to partner or be acquired by big players in the alcohol, tobacco or pharmaceuticals industries has likely decreased “significantly” in the short term following the release of the short report, while potential partners would likely look elsewhere in the cannabis universe, Kreindler wrote.
On Monday, marijuana producer Cronos Group Inc confirmed that it was in talks about a potential investment from Altria Group Inc.
Eight Capital’s downgrade follows GMP Securities analyst Martin Landry on Tuesday removing his price target and putting his rating under review.
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