Cronos Group (CRON) was in the red on August 30 and fell as much as 28.1% to ~$9. The company was hit by a negative report from Citron Research, which cited the lack of disclosure as a cause for concern. The lack of disclosure issue was related to missing information on the size of distribution agreements to supply cannabis to the provinces. Citron Research stated that “Our sources have informed us that it’s because the agreements are so small they could ever justify the premium investors are paying for the stock.”
The lack of disclosure creates information asymmetry, which is an issue for investors. In Sifting through the Big List of Cannabis Stocks to Find a Winner, we pointed out that the lack of depth and quality of information regarding the cost of production and realized prices makes it difficult to compare companies (HMMJ) side-by-side.
Stricter disclosure terms
However, unlike the many companies listed in the Canadian stock market, Cronos Group is listed in the US market. Cronos Group is subject to stricter disclosure terms from the SEC. When Cronos Group was listed in the US NASDAQ market, we issued a report highlighting some of the requirements Cronos Group has to meet. To learn more, read What Cronos Group’s Listing on the NASDAQ Global Market Means.
Despite the SEC’s requirements, Citron Research stated that Cronos Group hasn’t been disclosing information when other US-listed stocks including Tilray (TLRY) and Canopy Growth (CGC) (WEED) have been “forthright” in their disclosure about the supply quantity. Citron Research put a target price of $3.5 on Cronos Group, which was almost 61% lower than the closing on August 30.
Given the seriousness of the report, at least five law firms announced that they will investigate Citron Research’s claims. Each firm has encouraged Cronos Group investors suffering losses to contact their firms.
Visit Market Realist’s Healthcare page for more updates.