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Cronos Group besieged by short-seller Andrew Left's Citron Research, shares fall and end sharply up Friday

Last updated: 16:18 31 Aug 2018 EDT, First published: 14:11 30 Aug 2018 EDT

marijuana and money
Citron charges Cronos is failing to reveal key details about the size of its cannabis distribution agreements with the Canadian provinces

Shares in the Canadian cannabis group Cronos Group Inc (NASDAQ:CRON) have taken a tumble after the infamous short seller Andrew Left’s firm Citron Research delivered a pessimistic call on the stock.

In a note to investors and via its Twitter feed, Citron Research charged that Cronos is the “most overhyped” of all the pot stocks and set a price target of US$3.50 on the Ontario-based company.

The stock fell by 28.4% to US$9.12 in Thursday’s after-hours session. Those losses were extended early on Friday when Cronos stock on the Nasdaq in New York slid another 4.5% to trade at US$8.70 in premarket business.

But just as quickly, the stock reversed when trading got going on Friday. Shares climbed to a session peak of US$10.29 before ending 8.33% higher at US$9.88. The share rose 0.4% in after hours trade on Friday to US$9.92. In two days of trading, the stock had swung wildly from its lows to its highs.

Volume on Friday was at 43.465mln shares, more than five times the daily average volume of 8.05mln shares.  

In its biggest attack, Citron alleged that Cronos was failing to reveal key details about the size of its distribution agreements with the Canadian provinces. “Cronos management appears to have been deceiving the investing public by purposely not disclosing the size of its distribution agreements with provinces – unlike every other major cannabis player,” warned the Citron note.

Lack of transparency?

Sources told Citron that the reason for Cronos’s lack of transparency is that its distribution agreements are “so small they could never justify the premium investors are paying for the stock.”

Citron contrasted Cronos’s failure to disclose its contracts with releases put out by its rivals Canopy Growth and Tilray which list the kilograms of cannabis that are being supplied as part of their agreements with various provinces.

Despite having the first license to be issued by Health Canada in 2013, Cronos, which had revenue of C$3mln in its last quarter, has underperformed its competitors in the marijuana space such as Canopy, Aurora Cannabis and Tilray, and is “all talk”, Citron charges.

“Although the hype is big and the prohibition after 100 years is real, it is critical to understand that in the Canadian landscape there are over 100 licensed producers and there will ultimately be more losers than winners,” Citron said.

Canadian pot stocks have generated considerable interest in the markets ahead of Canada’s move to legalise all forms of marijuana on October 17.

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