(Bloomberg) -- Aphria Inc. defended a recent Latin American acquisition after a short seller accused the Canadian pot company of paying inflated prices for assets held by insiders.

Aphria’s takeover of LATAM Holdings Inc., which closed in September, “was a transaction negotiated at arm’s length between two publicly traded companies, each of which retained professional financial advisers,” the company said in a statement Tuesday.

Gabriel Grego, founder of Quintessential Capital Management, released a report Monday that said Aphria engineered a mechanism to siphon off money to companies held by insiders in South America and the Caribbean to the detriment of shareholders. The short seller said Aphria purchased companies from SOL Global Investments Corp., which had acquired them shortly before at a “significantly lower” price from three Canadian shell companies linked to Andy DeFrancesco, chairman of SOL and adviser to Aphria.

Aphria’s shares plunged 14 percent in pre-market trading in New York, adding to a 23 percent drop Monday.

Aphria denied that it and SOL are “sister” companies, as alleged by Grego. Its board received financial advice and a fairness opinion on the LATAM acquisition from Cormark Securities Inc., and Aphria believes that the purchase price was comparable with similar Latin American deals by other large Canadian cannabis companies, it said.

In his report, Grego posted pictures of his visits to dilapidated offices in Jamaica associated with the recent acquisition and a suburban pharmacy is Buenos Aires, which he said was evidence that the company’s assets are worthless. Aphria said its representatives conducted site visits and management meetings in each country before concluding the deal.

“Since closing this important strategic acquisition in September, we have made considerable progress building out our operations on the ground in Latin America and the Caribbean,” Aphria Chief Executive Officer Vic Neufeld said in the statement. He added that he and other members of the company’s executive team bought more than C$3.1 million ($2.4 million) worth of Aphria shares Monday.

--With assistance from Luca Casiraghi.

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, David Scanlan, Jacqueline Thorpe

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