Play Video Citron’s Andrew Left breaks down his short on pot stock Tilray
Citron Research's Andrew left reiterated his bet against the Canadian cannabis industry Wendesday, telling CNBC that he's short Canopy Growth and Cronos Group in addition to his already disclosed wager against Tilray.
Fielding a question from "Halftime Report" host Scott Wapner, Left said his doubts on the space aren't confined to just one company.
"I'm also short Cronos, I'm short Canopy, I'm short Tilray. So I'm short a basket of the names," he said. "Once the U.S. licensed producers come on — the faster it becomes legal in the U.S., the quicker the Canada names go lower."
"They won't get the exposure in the U.S., they're not players internationally," Left added. "I don't care how many press releases they put out, they're not going to be shipping cannabis from Canada to Australia. Not happening."
Shares of the three Canada-based marijuana producers sank Wednesday between Left's comments and Canopy Growth's earnings results. Tilray shed 11 percent and Canopy fell 15 percent in the U.S., while Cronos dropped 5.4 percent in Toronto.
Left's midday remarks came hours after Canopy Growth's second-quarter revenues results missed even the most conservative Wall Street estimate.
The company's total revenue of 23.3 million Canadian dollars fell well short of the average analyst expectation of CA$60 million despite growing 33 percent from the prior year's second quarter. The results represent Canopy's first sequential top-line decline.
To be sure, only a few analysts cover Canopy, a fact that makes any consensus projection less precise.
"With business opportunities expanding globally, we continue to make significant investments in building our international team and footprint," Bruce Linton, Canopy's chairman and co-CEO, said in a press release. "The completion of, to our knowledge, a world first Canadian export of a U.S. federally legal DEA permitted product, and the announced acquisition of U.S. federally legal hemp R&D specialists, ebbu, are critical stepping stones for our broader entrance into the U.S. market."
Of the few analysts that cover Canopy, Canaccord Genuity's Matt Bottomley said he's not too concerned that Canopy's second-quarter results suggest disappointments going forward. He maintained his buy rating on shares following the earnings release.
The weaker revenue is "a hiccup in getting products to Germany, along with minimal initial shipments into provincial recreational channels," he wrote to clients. "We believe we will see higher recreational sales impacting the company's top line next quarter. Given the company's leading position with 70,000 kilograms in supply agreements (excl. Ontario), we believe this could amount to more than $300 million in revenues and can support the company's leading position in the recreational market."
Canopy has been seen as a better bet in the cannabis space thanks to a $5 billion strategic partnership from international brewer Constellation Brands. Access to capital is seen by some analysts as key to the future success of marijuana companies, which are struggling to build up enough production to meet swelling demand.
"We think Constellation Brand's recent investment provides significant additional financial capacity and operational capabilities to become a leading CPG company, longer-term," Cowen analyst Vivien Azer wrote Monday, before the earnings results. "We think that demand for Canopy's products remains strong. As we have highlighted in our e-commerce platform checks, Canopy has steadily grown its product listings amongst our five province sample, covering 65 percent of Canada's population."
Azer had forecast Canopy posting revenue of CA$60 million.
Neither Canopy nor Tilray reported a significant bump in sales thanks to recreational cannabis. However, this is likely unrepresentative because Canada's prohibition against adult recreational use was overturned at the start of the third quarter, on Oct. 17.
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