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I am not saying fraud did not exist, but I am writing that the potential for fraud not being committed does exist.

OK, this corrected sentence is a little clearer now. In other words, fraud is possible but it is also conceivable, in your view, that there has been no fraud.

But I disagree. In the case of Nuuvera, they have basically already admitted to fraud. In the more recent Latam case, it is very hard to explain the facts revealed by QCM/Hindenburg without fraud being a part of it, unless QCM/Hindenburg are just out and out lying. I think the bull case is that there has been fraud, but it is not material, or has already been priced in, at $6 a share, and the value of the Canadian assets make it a reasonable take-over candidate with a premium from today's price.

And on the fraud front, the company has now added Act III: the Green Growth Brands takeover offer. Not only is the offer bizarre on several scores (the acquirer is a company with almost no assets, the offer involves no cash, the premium is based on a hypothetical increase in the acquirer's share price, and the present price of the acquirer's shares seems highly manipulated in the first place), but the multiple connections between the two companies makes it seem highly likely that the offer is designed primarily to reassure Aphria's investors that they have something worthwhile. I would admit that there is an alternative plausible explanation for this offer: an opportunistic bid taking advantage of Aphria's weakness and desperation.

As you know, I feel that share prices in the whole sector (Canadian cannabis companies) are highly inflated, and are based on extremely optimistic projections. Current Canadian cannabis consumption is around 1 million kilos a year, and current cannabis producer prices (about $3 a gram) are in the context of a legal industry that can only supply about half of this demand, so all the provincial dispensaries are out of product for most lines. BUT! all these companies (Canopy, Aphria, Tilray, Aurora, etc) are rapidly building out capacity, and cumulatively project production capacity of over 2 million kilos within a year (greenhouses are pretty quick to build, this is not like building a car factory). So current margins are likely to come under severe pressure very shortly, and may go to zero or lower. They like to talk about international expansion, but I suspect most countries will be like Canada in that they restrict business to domestic companies. Cannabis apparently is not part of our free trade agreement.

All these companies confidently project that they can quadruple their production and keep the same profit margins, but I suspect this will end in tears for most of them. I would not bet on any of them, but particularly not the one where there is also quite strong evidence of fraud. I have a small short on Aphria (much less than 1/2 of 1%, at an average price of about $6.25, very close to the current price, more for fun than for profit. I can't reasonably make it bigger because the borrow fee is outrageous (about 40% when I last checked). If you are long, although I think this is a poor investment choice, I suggest you at least look into holding your shares at a broker like Interactive Brokers, where you could be rebated half of this borrow fee. You might as well get paid 20% a year for the risk of losing all this capital!

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