It’d be pretty fair to say that this is not how marijuana stock investors envisioned 2019 would go. After beginning the year on a (pardon the pun) high note, with more than a dozen pot stocks gaining in excess of 70% during the first quarter, the past 8.5 months have been nothing short of a train wreck.
To our north, Canada has struggled with the regulatory aspects of establishing a legal weed industry. Health Canada has been slow to approve cultivation, processing, and sales license applications, while Ontario, the most populous province, hasn’t approved retail store licenses in a timely manner. Meanwhile…
high tax rates and a Swiss-cheese-like state-level approval process has constrained marijuana sales in legal U.S. states. In essence, the black market is thriving throughout North America.
This top-tier U.S. pot stock was just accused of fraud
And yet, a few companies have bucked this trend and marched higher. One such top performer is Florida-based, vertically integrated multistate operator (MSO) Trulieve Cannabis (OTC:TCNNF). As recently as two weeks ago, Trulieve’s stock was up nearly 60% year to date, making it a top five marijuana stock for the year, in terms of performance. But that all changed on Tuesday, Dec. 17.
Just two days ago, noted short-seller Grizzly Research released a report on Trulieve that alleges the MSO is a fraud, which at one point on Tuesday caused the stock to shed as much as 23% of its value.
According to Grizzly, there are a number of things that didn’t pass its smell test. Here are a sample of the most notable problems it found with Trulieve:
- Grizzly suggests that most of Trulieve’s cultivation farms produce low-quality cannabis that’s prone to infestations and weather damage.
- The short-side firm implies that CEO Kim Rivers’ husband, JT Burnette, is at the center of an FBI probe, is Trulieve’s key construction partner, and that there are potentially several undisclosed related-party transactions where Burnette-affiliated companies sold real estate to Trulieve for a profit.
- Grizzly alleges that Trulieve hasn’t been truthful about its lenders, many of them being third parties that were traced back to company insiders.
Just hours after Grizzly Research released its scathing report, Trulieve and its CEO responded, noting that the report contained “several false, slanderous and misleading statements about Trulieve.” The response from the company indicates that this looks to be nothing more than an attempt by a noted short-seller to manipulate a company’s share price in its favor, and that the company plans to pursue legal action against Grizzly Research.
‘Tis the season for dishing out allegations of fraud
Mind you, this isn’t the first time a marijuana stock has been accused of fraud by a research company.
In October 2018, Namaste Technologies (OTC:NXTTF) was the first pot stock to go under the guillotine after Citron Research alleged the company was a “complete fraud.” First, Andrew Left of Citron suggested that Namaste’s claim of uplisting to the Nasdaq was fake and only designed to lure in unsuspecting investors. Second, Left alleged to have uncovered a related-party sale tied to the company’s divestiture of Dollinger Enterprises in 2017. Similar to Grizzly Research, it’s common for Citron to hold a short position in the companies it writes negatively about.
Just two months later, in December 2018, it became Aphria‘s (NYSE:APHA) turn to be rocked by allegations of wrongdoing. The duo of Quintessential Capital Management and Hindenburg Research claimed that Aphria had purchased three assets from SOL Global Investments from an inflated price tag. The report suggested that these assets were acquired by SOL for just pennies on the dollar, relative to what Aphria wound up paying, and that there were related (but undisclosed) parties involved in the transaction.
This allegation proved especially worrisome for…
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