Today Citron Research came out with a vague shorting report on Cronos (CRON.N), giving them a price target of $3.50 . The market ate it up and Cronos dropped 28% on 22 million shares traded.
Claiming Cronos is overvalued at this point is a valid argument. One could make the case that the entire cannabis sector is overvalued as well, but to single out Cronos and its company dealings is a very strange angle to take. Cronos is arguably one of the most legitimate operations in the cannabis space, with proven revenue and an extremely transparent leadership team that does not promote the hell out of their stock, they seem like an odd target. Andrew Left runs Citron Research, the man has had a checkered past to say the least.
The conclusion of their ‘research’ is that Cronos is under performing and that management is lying to their investors by way of securities fraud. Citron also bashes Cronos for only doing $3 million in revenue last quarter and for being below companies like Canopy (who have a couple billion extra on their market cap.) Comparing Canopy to anyone in the sector at this point is not only unfair, it makes no sense from a fundamental perspective as these are two vastly different companies in terms of scope.
The report also shows the only 5 LP’s who are currently generating more revenue than Cronos and then goes into further tables and charts comparing Cronos to Canopy and how Cronos is far behind the leader.
Earlier today Rosen Law Firm announced an investigation of securities claims against Cronos. “On August 30, 2018, Citron Research published a report stating that “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 . . . because the agreements are so small they could never justify the premium investors are paying for the stock.”
The problem with that logic is, the supply agreements (MOU’s) the cannabis LP’s have with the provinces are not for specific amounts. The provinces did not want amounts posted in company press releases as they did not agree to purchase certain amounts from each LP’s. The LP’s who did post amounts were posting the number of kg’s they were allocating for their MOU with the province. This made a lot of investors confused as they believed that the provinces were legally obligated to buy X amount from the company, for example: Alberta purchasing 3,375 kg’s from Maricann.
If this is the only bullet in Rosen’s chamber, it’s an extremely weak claim. Looking through older press releases, Rosen takes these actions almost daily.