Cronos Group, Analyst Respond To Citron's Short Report

Cronos Group Inc CRON stock bounced back by 8.8 percent Friday after a 30-percent Thursday sell-off. The decline stemmed from accusations from Citron Research that Cronos is deceiving investors by not disclosing the size of its distribution agreements with Canadian provinces.

Citron’s Take

Citron's Andrew Left said Thursday morning that Cronos’ agreements are so small that they wouldn’t even come close to justifying the huge gains in the company’s market cap. Left said Cronos lags its Canadian cannabis peers in sales, trades at a steep premium to Canopy Growth Corp CGC (which has a beverage deal in place), has a history of product recalls, has no U.S. business and is spending practically nothing on research and development.

“When looking at Cronos relative to other cannabis stocks that have yet to receive a ‘beverage deal,’ Cronos’ sky high valuation looks completely out of whack with fundamentals,” Left said.

He told CNBC on Thursday afternoon he covered "a small amount" but is "still extremely short" the stock. He set a $3.50 price target on Thursday.

Cronos Responds

On Friday, Cronos spokesperson said investors shouldn’t rely on the Citron report.

“As independent industry analysts have already noted, the Citron reports is flawed, with numerous misleading and inaccurate statements,” the spokesperson told Benzinga in an email, and that the company is confident in its growing products and channels and the opportunities that lie ahead.

Reaction Overblown

GMP Securities analyst Martin Landry said some of Citron’s claims were “unfounded and biased.”

“Amongst the companies under coverage, Cronos stands out as having partnered with high profile companies including MedMen Enterprises, Cura Cannabis Solutions, Mucci Farms, and Pohl-Boskamp GmbH,” Landry said a note.

GMP, which is based in Canada, has a Buy rating and C$10 price target for Cronos stock.

Investors should expect cannabis stocks to continue to be volatile heading into Canadian legalization of adult-use marijuana on Oct.17.

Beverage Partnerships

Following the Citron report, marijuana stocks tanked across the board. But the group recovered Friday following a CNBC interview by Canopy Growth CEO Bruce Linton. Linton said the recent $4 billion investment in Canopy by alcoholic beverage giant Constellation Brands, Inc. STZ is just the tip of the iceberg.

“It would be a pretty terrible job to be the CEO of a beer or spirits company and not have a cannabis strategy,” Linton said.

Related Links:

Everything You Need To Know From The Cannabis Capital Conference

Canopy Growth CEO Discusses Canadian Legalization, Beverage Deals