Theo Wargo/Getty DCMJ's Inaugural #Trump420 Marijuana Rally on January 20, 2017 in Washington, DC.
- Citron Research says marijuana company Cronos is worth one-third of its current value.
- Specifically, Citron says Cronos has duped investors by excluding key information from disclosures.
- Cronos fell as much as 10% following the note.
- Follow Cronos in real time here.
Citron Research - a short-selling firm with a history of wiping out stock prices and run by Andrew Left - has a new target: cannabis stocks.
In a report published Thursday, the firm says Cronos, one of the most valuable publicly traded marijuana companies, is worth roughly one-third of its current price: $3.50 per share.
"Citron would like to inform investors of caution on the ongoing and real green rush," the firm said.
"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."
Specifically, Citron cites a lack of disclosures from the firm - which trades only in Canada, unlike some of its US-listed competitors - about major events. First, Citron criticized Cronos' lack of specifics in terms of its provincial supply agreements, and notes all other suppliers, including competitor Canopy Growth, have specified the amounts they've been tapped to supply.
"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," Citron wrote.
"Our sources have informed us that it's because the agreements are so small they could never justify the premium investors are paying for the stock."
Citron also says a major recall in May of Cronos' product in Germany wasn't disclosed to investors.
Cronos has been a popular investment among traders on Robinhood, who tend to skew younger than on traditional brokerages. The stock currently has more than 96,000 holders on the app, Robinhood's website shows, up from just 60,000 less than a month ago.
Cannabis stocks, including those of Cronos and its competitors, have seen an impressive run-up following investments by the beverage makers Constellation Brands and Lagunitas, but Citron says reports suggesting Britain's Diageo was interested in the space had already compelled investors to price a new deal in to Cronos' stock.
"Yeah right, Diageo would ever do a deal with a company who has a history of contamination and has proven that they cannot even produce a small amount of commercial product," Citron wrote. "This is a NON EVENT. Citron feels stupid even discussing this, but it had to get mentioned."
Cronos did not respond to a request to comment from Business Insider.
Shares of Cronos fell as much as 10% in trading Thursday follow Citron's report, but were still up 57% since their March debut.
Citron and its founder Andrew Left have previously come out with reports against Snap, Inogen, Wayfair, Netflix, and others. Left is perhaps best known for his damning October 2015 report that accused Valeant Pharmaceuticals of being a "pharmaceutical Enron," in which he helped bring up questions regarding the firm's accounting and relationship with the specialty pharmacy Philidor.
