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12/5/18

Aphria Inc (APHA): I sincerely hope clients of Scotiabank sue their brokerage

Before getting to the point of this post, I want to make it clear that this is not about the merits or otherwise of Aphria Inc. (APHA), the recently high-flying but now troubled pot stock. It's not even about the short report published by Hindenburg Research and Quintessential Capital Management, which has grabbed many headlines and made the stock do this:



My point is about Scotiabank and its analysts on the marijuana sector, namely Oliver Rowe and Ben Isaacson. As we know from yesterday, Rowe and Isaacson in October 2018 told the world that the pot sector "is real and here to stay", which is fair enough as an opinion. The went on to state this, "When selecting stocks in this sector, investors will need to assess the quality of management, funding and strategic relationships they have in place", which is also a reasonable statement, I suppose.

And then they selected Aphria Inc. (APHA) as the best way to play the sector, their number one equity idea, their Top Pick. However, what we now know thanks to the Hindenburg short report is, no matter what happens in the future to APHA, there are serious doubts to the quality of the management. The strategic relationships have gaping holes in them, at least in the LatAm arm (the part about Argentina was too amazingly funny for words) and as for the funding, the evidence as seen so far from Hindenburg/Quintessential shows plenty of reason for doubts. It is now patently clear that Rowe and Isaacson decided to make APHA their Top Pick without doing the necessary DD. Maybe they just took the word of the company as gospel, or didn't ask the right questions, or didn't do the legwork. But you can bet several thousand dollars against one freshly baked doughnut that they did NOT visit the company's assets before deciding not only to recommend this stock, but to make it their number one Top Pick of them all.

That is lazy. It's negligent. It's a godawful attitude toward your profession. And I'd vouch that their pathetically poor Due Diligence on APHA has opened Scotiabank up to lawsuits from people, clients of Scotia, who took their sell side analysis at face value and bought on this advice, back in mid-October when it was a $14 and $16 stock. A multi-billion dollar growth sector, a $2.6Bn market cap company, a team of two, a Top Pick....and you can't dedicate a few days to checking out the fixed assets in Jamaica, Colombia and Argentina? My stars, I hope Scotia gets its cojones clavados on this, it would be a step forward in clearing up the deservedly pathetic reputation of the Canadian sell side brokerage industry.