Is a dispute about to ignite between two notable marijuana stocks?

On Tuesday, Aleafia Health (OTC:ALEAF) announced that it had served notice to Aphria (NYSE:APHA) that it was terminating a wholesale cannabis supply arrangement between the two companies. The notice is effective immediately, Aleafia said.

Marijuana bud with smoke behind it

Image source: Getty Images

Under the terms of the arrangement, Aphria was responsible for supplying up to 175,000 kilos in cannabis products over a five-year stretch to Aleafia's subsidiary Emblem. The deal was signed last September, and took effect at the beginning of May.

Aleafia pointed the finger of blame squarely at its partner. "Following Aphria's failure to meet its supply obligations under the Supply Agreement, Emblem has exercised its contractual right to terminate the Supply Agreement in accordance with its terms," Aleafia wrote in a press release. It did not go into detail about the alleged failure.

Aphria sees the situation differently.

Shortly after Aleafia's press release was posted, Aphria issued its own, saying that it "had every intention of fulfilling its obligations under the Agreement. As a large shareholder of Aleafia, Aphria made good faith efforts to ensure continuation of the Agreement understanding it was in the best interest of all parties involved."

Aphria added that, according to the terms of the contract, the two companies are mandated to negotiate for 30 days following a notice of termination. Aphria said that if no settlement is reached, and if Aleafia files a claim for damages arising from the deal, it will "vigorously defend itself."

Emblem is a formerly independent company that was purchased at the end of 2018 by Aleafia. At the time, the deal -- originally between Emblem and Aphria --was valued at just over 173 million Canadian dollars ($130 million).

Aleafia did not provide any information about which supplier, if any, would replace Aphria in the Emblem arrangement. It did say that the termination of the contract would not affect its "operations, business or results."

Aphria also downplayed the deal's importance, saying much the same thing in its press release.

Both stocks were down, albeit marginally, in trading on Tuesday. Aleafia was off by 2.2%, while Aphria was in the red by 1.6%.