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Why this ASX cannabis share price is in limbo today

Althea Group Holdings Ltd (ASX:AGH) shares are in a trading halt pending an announcement, with rumours swirling that major shareholder and supplier Aphria is looking to sell their stake in the Australia marijuana supplier. Althea shares have been flying high since their IPO, sitting at around 52 cents since listing at 20 cents.

Aphria supplies both expertise and the products that Althea distributes in Australia, named ‘Capilano’, ‘Champlain Indica’, ‘Jasper’, and ‘Rideau’. The plan is for Althea to start producing its own versions of these products in Australia using clone starting materials. First, though, Althea will need to get its production facility up and running. The $3 million of funds raised in Althea’s IPO were earmarked for the construction of the facility in Victoria.

The Australian Financial Review (AFR) has reported that the trading halt was prompted by a material supply agreement, which raises questions about the ongoing supply of products by Aphria to Althea. Further, according to the AFR, stockbroker PAC Partners is organising a group of investors to buy 37 million shares, or a 16% stake, in Althea.

According to the report, the shares could be sold at 40 cents each, a steep discount to current market prices. Aphria, a Canadian marijuana company, has been a key strategic stakeholder in Althea. As at the date of Althea’s annual report, Aphria held 50,750,000 shares, nearly 25% of shares on issue, but the AFR article reports that it has been selling on-market in recent days.

Aphria initially invested in Althea at the start of 2018, agreeing to the supply agreement in exchange for a 25% stake in the Australian cannabis company. The deal expanded Aphria’s global footprint, with Aphria’s CEO stating at the time that Australia’s fledgling medical cannabis market was a key pillar of Aphria’s international expansion strategy.

Why Aphria may have had a change of heart is unclear, but it has been reported that some marijuana producers are reducing exposure to Australia in an effort to clean up their balance sheets. Althea shares are due to resume trading tomorrow, or when an announcement is released to market.

Cannabis stocks have been in decline of late as the the vaping crisis in the US takes its toll. Auscann Group Holdings Ltd (ASX: AC8) has lost 65% of its value to sit around 27 cents from 77 cents in January. Cann Group Ltd (ASX: CAN) is down to $1.04 from highs of $2.57 in April. Likewise Creso Pharma Ltd (ASX: CPH) is languishing around 26 cents after reaching 55 cents in June.

Foolish takeaway

Althea has been one of the outperformers pot stock sector, but for now it’s a wait and see on whether that will continue.

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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