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Village Farms International Inc (TSX:VFF): This Famous Investor Thinks it’s a Giant Fraud

Economic Turbulence
Economic Turbulence

Village Farms International (TSX:VFF)(NASDAQ:VFF) stock is riding high from all the cannabis hype.

Since 2019 began, shares have exploded higher by more than 300%. The run could be over, however. At least that’s what one famous investor is saying.

While you may not have heard of Andrew Left, he is one of the most respected short-sellers today. His firm Citron Research has uncovered countless frauds and scams, profiting handsomely after the stocks take a dip.

Recently, Left has set his targets on Village Farms. Here’s what he discovered.

You need to know these details

On April 16, Citron Research shocked the cannabis industry by releasing a bearish report on Village Farms. The firm set its price target at $1 per share, representing more than 90% of potential downside.

Keep in mind that Citron Research isn’t bearish on the cannabis industry as a whole. In fact, it’s recommended buying multiple cannabis stocks. “We acknowledge that there are real players in the business,” Citron’s report said. “We put Village Farms in the category of pretenders.”

The most concerning factor has been Village Farms’s joint venture with Emerald Health Therapeutics.

In 2016, Village Farms was little more than a penny stock. The company wasn’t in the cannabis business at all. It mostly grew commoditized produce like tomatoes, cucumbers, and peppers.

After agreeing to partner with Emerald Health Therapeutics, Village Farms stock skyrocketed higher, reaching a market valuation of more than $1 billion. Citron believes this was primarily a result of “paid stock promotion” on Twitter and multiple unlicensed, unregistered penny stock recommendation services.

“This JV should be in the crosshairs of the SEC due to its numerous red flags highlighted by the SEC regarding investment schemes involving marijuana-related companies,” concludes Citron’s report.

Can you trust Citron?

Citron makes money if a stock it shorts goes down in price. For that reason, many investors are saying Citron is simply using its reputation to profit by casting fear and doubt onto Village Farms shares.

If you look closer, however, Citron makes a good case. There are several supporting details that paint a troubling picture.

First, Avtar Dhillon, the CEO of Emerald Health Therapeutics and board member at Village farms, has a concerning track record. Of the last nine companies he has been a part of, each one has lost at least 50% of its stock price value following all-time highs. Many have lost 90% of their value or more.

He’s also a board member at Vitality Biopharma, which was halted by the SEC last year on concerns of stock price manipulation. Two years ago, another company that he founded, OncoSecMedical, received criticism for potentially unlawful stock promotion.

So, Village Farms seems to be advised by long-time stock promoters with a penchant for shirking SEC regulations. It seems like others have caught on.

The second factor that supports Citron’s claims is the mass exodus of company insiders.

Since 2014, 18 senior executives have left the company. Over that period, Village Farms has churned through three CEOs and three CFOs. For a supposedly promising company, that’s a terrible look.

Stay far, far away

If you’re a cannabis bull, there are plenty of cleaner ways to profit. The concerns at Village Farms are simply too great to warrant an investment.

Given Citron’s track record, don’t be surprised to see Village Farms stock take a dive this year.

More reading

Tom Gardner owns shares of Twitter. The Motley Fool owns shares of Twitter and Village Farms International, Inc. Fool contributor Ryan Vanzo has no position in any stocks mentioned. Village Farms is a recommendation of Hidden Gems Canada.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019