I want to jump in on Village Farms (VFF) today. The stock was down about 10% on Tuesday afternoon after Citron issued a report inferring the company is a fraud (calling for an SEC investigation) and assigned it a $1 price target. After reading the report, I believe there should be an SEC investigation of Citron for manipulation. This isn't the first time it has happened and it won't be the last time it occurs.
The important thing to know about all Citron reports is the focus is not to point out fraud to save you, the investor, but to scare investors into overreacting so that you can make Citron money. The reports twist words, sensationalize circumstantial visuals or activities, and manipulative viewpoints. This is the same tactics advertisers use or newsletters that are promising 1000% returns. Do you really believe the $1 price target is based on some valuation method? Heck no. Choosing a target like $1 is symbolic. It's a mind game. A buck is only a buck. It's worthless in the market in terms of a stock price for more companies.
I've gone through the Citron presentation several times. Honestly, it's lazy analysis. First off, the only somewhat relevant bearish points all have to do with Emerald Health Therapeutics, not Village Farms. Citron is concerned about a Board member at Pure Sunfarms, a joint venture between Emerald Health and Village Farms. The Board member comes from Emerald, not Village. But this is a Board member, not the CEO, President, or any one of the many VPs. I agree that could be a minor yellow flag for some, but Board members can be replaced if not acting in the best interest of the company. I'd be far more concerned if it were someone operationally in charge of the joint venture.
Next, Citron talks of Emerald's past failed partners as an indictment of Village Farms. So what? Are my ex-girlfriends an indictment of my wife? It's a weak argument at best, but one easy to manipulate. Claim guilt by association and there's no way to immediately prove innocence. Convenient and manipulative for sure.
Then, we move to the March 1 deal with Nature Crisp. Essentially Village Farms is paying $15 million to access potentially thousands of acres of growing area for hemp. Citron posts a Yelp picture (with only one review) showing a Nature Crisp related entity closed. Actually, the picture says PERMANENTLY CLOSED, and Citron talks of the failed turf business of a small farmer. Yet, if you go to the company's website, it's fairly impressive. If you call the company (I did), they will talk to you about their sod business that is still very much in operations. Again, sensationalize and scare, but don't do any real research on the belief that folks reading your hit piece won't do any research either.
Maybe my favorite accusations was the headline "Fraud Added to Village Farms JV Risk Factors"
Investors see the word "fraud" and panic. Then, Citron adds the phrase, "If you disclose fraud does it make committing fraud ok?"
Let's take a peek at the actual words used:
"Liability of Illegal Activities by Employees, Contractors or Consultants".
"The Joint Venture is exposed to the risk that its employees, independent contractors, consultants, service providers and licensors may engage in fraudulent or other illegal activity"
Those appear to be fairly standard CYA (cover your assets) type of disclosures. They don't condone fraud nor allude to the company anticipating it. It is simply a company disclosing all the things that can possible go wrong when running a business. If one were to scour the disclosures of even the biggest and best run companies in the world, they could find disclosures to sensationalize in the same manner.
Lastly, Citron points to insider selling. They throw out a big number like the CEO sold 150,000 shares to you, you bagholder puppet. Yet, they don't disclose how many shares the CEO owns or the fact the same equals less than 2% of the insider's holdings.
I almost forget that Citron pointed towards VFF's use of stock promoters. While I'm not a huge fan of this, there are hundreds, if not thousands, of small companies that utilize this style of PR. They almost have to because analysts on Wall Street won't give them any coverage and many large financial media organizations refuse to cover small stocks.
For aggressive investors seeking to broaden their exposure in the cannabis and CBD space, I view this as an opportunity to sell May 17 $10 puts at $1.25 or even buy shares under $11.00.