Pot stocks’ crazy volatility exposed after one short call


Inside CannTrust Holdings Inc. Niagara perpetual harvest greenhouse. (Bloomberg pic)

TORONTO: What’s strange about a stock that shoots up 125% in about two weeks and then plunges 28% in one day? Not much, if you’re an investor in the burgeoning Canadian marijuana industry.


Cronos Group Inc., which describes itself as a diversified and vertically integrated cannabis company, has taken shareholders on a wild ride since Aug 14. The stock had climbed to record levels on speculation that more alcohol companies will strike deals with marijuana growers. That crashed to a halt Thursday after short seller Citron Research released a report saying the shares should be trading at about a quarter of the price. Shares rebounded as much as 9.4% in trading in Toronto on Friday.

Analysts at PI Financial, which was one of the underwriters for Cronos’s C$100 million (US$76.7 million) offering in April, said the Citron report was “light on meaningful content and had numerous red herrings.” The analysts called the sell-off unjustified and recommended that investors take advantage and buy shares.

The claims in the report “appear unfounded and biased,” GMP analyst Martin Landry wrote in a note, adding that the company has strong third-party endorsements from the likes of MedMen Enterprises Inc., allocates capital efficiently and has good visibility on 2019 earnings.

Cronos spokeswoman Anna Shlimak said the volatile nature of the stock price comes with being part of a “new industry and sector in hyper growth mode.”

“We are in the early innings of a global paradigm shift and our focus is and will continue to be on our business and on creating long term value not on short term stock movements and volatility,” Shlimak said in an emailed statement.

Short interest for Cronos’s US shares has risen to 11.7% of the available float as of Aug 30, up from 1% six months ago, according to financial analytics firm S3 Partners.