Village Farms Rallies After Short Seller Attack
Village Farms International shares have begun to rally following a Citron Research short that sparked a sharp decrease yesterday. The firm has been one of the best performers in the cannabis sector this year and its share price increased 260% from C$4.78 on Jan. 2 to C$17.25 on Apr. 17. Then Citron struck when it was testing important technical levels and VFF plunged to C$13.99 within less than an hour. Citron ascribed a $1 share price target after branding it a “failed tomato farmer” and a “pretender” that seeks to “separate investors from their money”. Yet some investors decided yesterday’s price decrease represented a strong opportunity to buy Village Farms shares at a knockdown price and it has since rallied. It opened at C$15.05 on Apr. 18 and increased to C$15.60 by noon and then hit C$16.34 by 1 p.m.
Joint Venture Could be a Gem
Village Farms was certainly a tomato farmer as it focused solely on greenhouse produce before launching a joint venture called Pure Sunfarms with Emerald Health Therapeutics in 2017. However, it might be a stretch to call it a failure, as it was profitable in two of the past four years. Pure Sunfarms already has the capacity to produce more than 75,000 kg per year and it will become fully operational this month. It has just announced plans to double production capacity, which will see its output increase to 150,000 kg per year and make it a major player in the Canadian cultivation trade. It is a 50/50 JV and that would leave Village Farms with 75,000 kg. Chief financial officer Stephen Ruffini claims that production costs are below C$1 per gram, and bulk cannabis currently wholesales for C$7.11 per gram in Canada, according to New Leaf Data’s cannabis benchmark tracker. That average wholesale price could drop significantly and still leave Village Farms and Emerald with plenty of room for profits. The major risk for shareholders is that the JV partners get the execution wrong, but that risk exists for the vast majority of pot stocks. Shares in Emerald also suffered a decrease after the Citron attack, rapidly going from C$4.05 to C$3.66. It has not rallied as well as VFF, despite also announcing it has received a determination from the DEA that its lead product candidate, EHP-101, is not considered a controlled substance in the U.S. Chief executive Jim DeMesa said this will eliminate many costs and complexities as it plots an expansion in the American cannabis market.
Avtar Dhillon Accusations
Citron has made some prescient takedowns of pot stocks, but it was well wide of the mark with its attack on Cronos Group. It remains to be seen whether VFF will also prove it wrong, but its criticisms of board member Avtar Dhillon might concern some investors. It called him “an infamous penny stock promoter” and ripped into his role at Vitality Biopharma, which was halted by the SEC on Nov. 2018 amid allegations of potential stock manipulation. Dhillon was not singled out by the SEC. Citron also shone a light on OncoSec Medical, a stock that had Dhillon as chairman and his nephew Punit as chief executive before it was embroiled in controversy. Its report went on to list the executives that have left Emerald Health over the past five years, including four presidents/chief executives, three chief financial officers and various board members, claiming they “did not like what’s going on at the company”. Neither Village Farms nor Emerald have issued a response yet, and perhaps they are just hoping it will blow over soon. Read the full article
