Why Cronos Group And Aphria Are Moving in Opposite Directions

Shares of Cronos Group Inc CRON and Aphria Inc APHA extended their recent moves in opposite directions on Tuesday morning, as investors continued to digest major headlines related to the popular cannabis companies.

Cronos shares, which added more than 11 percent on Monday, were up another 5 percnet in morning trading on Tuesday after the company confirmed it has been in talks with tobacco giant Altria Group Inc MO about a potential investment. Reports revealing these discussions first surfaced on Monday.

An investment or takeover from Altria could be exciting news for Cronos investors and the broader marijuana industry. Canadian legalization and listings on U.S. exchanges, among other factors, have helped cannabis become an exciting new investing segment, but there is still a sense of uncertainty that involvement from an established leader like Altria might help solve.

Still, any potential deal, Cronos said in a statement today, is far from guaranteed.

"No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies," wrote Cronos Group.

Meanwhile, Aphria shares fell more than 20 percent on Tuesday morning, extending volatility which saw the stock lose almost 28 percent in the previous session. Aphria has been battered by a short-seller's accusation that a recent deal to buy LATAM Holdings, a Columbia-based medical cannabis producer, was "largely worthless" and served only to benefit insiders.

According to Quintessential Capital Management's Hindenburg Research, Aphria used cash from dilutive share issuances to purchase LATAM at an over-priced valuation, effectively diverting millions of dollars "from shareholders into their own pockets."

Aphria steadfastly denied the allegations on Monday morning. In a press release, Aphria called the report a "malicious and self-serving attempt" to manipulate its stock price.  

As for the LATAM acquisition, Aphria said that its board of directors "received financial advice and a fairness opinion from a reputable firm that the consideration to be offered by Aphria in respect of the transaction was fair, from a financial point of view, to Aphria and its shareholders."

The drama underscores the aforementioned uncertainty of today's cannabis business and has dragged Aphria shares lower, while many of its industry peers have surged on the hopes of major M&A deals.

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