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Report on Business Village Farms shares slide on negative report by short-seller Citron Research

Noted U.S. short-seller Andrew Left took aim at B.C. grower Village Farms International Inc., sending the company’s stock down nearly 11 per cent Tuesday and partially reversing a remarkable run.

Mr. Left, of Citron Research, said the cannabis investors have better choices than the vegetable-growing company, the shares of which had more than quadrupled this year on the strength of a joint venture to grow marijuana in its greenhouses in Delta, B.C. Village Farms, which has posted nearly US$750-million in sales over the past five years, has been slightly less than break-even, profit-wise, over that time. Yet, the cannabis connection helped Village Farms hit $1.1-billion in market capitalization late last month, not long after its listing on the U.S. Nasdaq exchange.

The appeal to pot investors is the 50-50 joint venture, called Pure Sunfarms Corp., which Village Farms formed with Emerald Health Therapeutics Inc. TSX-Venture-listed Emerald Health had just over $1-million in revenue in the past 12 months, a $20-million net loss and a market cap of $600-million, according to S&P Global Market Intelligence. In June, 2017, the two companies said they were creating the venture to combine Village Farms’ greenhouse capacity with Emerald’s cash and cannabis knowledge. Pure Sunfarms, Village Farms said at the time, has the goal to be the lowest-cost cannabis producer in Canada.

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In targeting Village Farms, Mr. Left outlines a number of associations Emerald Health principals have had with other small companies that have been the subject, he said, of promotional activity that accompanied a rise in the share price. One previous Emerald partner, Namaste Technologies, was a target of Mr. Left’s in October. Mr. Left says the U.S. Securities and Exchange Commission should investigate Village Farms for its public statements and the amount of stock in the company some insiders have sold as part of the company’s stock offerings.

Village Farms’ TSX-listed stock closed at $15.18 Tuesday, down from its Monday close of $17.03 and its March 22 high of $24.25. Emerald Health shares also declined Tuesday on the Citron report, falling 12.5 per cent to close at $3.63. Short sellers borrow stocks, sell them, then repay the shares later, hoping to buy them at a lower price. So when stocks decline, short-sellers profit.

Village Farms did not return calls and messages Tuesday seeking comment.

Allan Rewak, vice-president of communications and stakeholder relations for Emerald Health, said investors should judge the company on its own track record. “Emerald is very proud of what we’ve achieved – we welcome people taking a deep look under the hood, because we’re one of the original 13 licensed producers in Canada … we’ve gone from one 3,000-square-foot facility to over 1.2 million in licensed cultivation currently, a massive footprint providing a substantial amount of high-quality greenhouse and indoor-grown cannabis.”

Mr. Left’s short-selling style is bombastic, with brief reports that sometimes allege illegal activity and often call on U.S. regulators to clamp down on a company. His negative report, in 2015, on Valeant Pharmaceuticals International Inc., before the company’s remarkable share-price tumble, earned him followers. His 2017 attack on Canadian tech darling Shopify Inc.'s marketing practices, however, has not panned out, as Shopify’s stock price has continued to climb.

The cannabis industry has been fertile ground for Mr. Left, who has been on both the long and short side of Canopy Growth Corp. and Tilray Inc., and has shorted Cronos Group Inc.

Greg Taylor, the portfolio manager for cannabis holdings at Purpose Investments, had shorted Village Farms recently and covered his position last week by buying back the stock at $20 and repaying the loan. He says Citron’s reports should be taken with “a grain of salt. ... There is no smoking gun here.”

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“A lot of people have made a lot of money in a very short time and are probably very close to hitting the sell button anyway and are just looking for a reason,” he said. “They’re saying they’re not sure why [Village Farm shares] went from $5 to $20, ‘But I’m not going to stick around to see whether it goes back to $5.’”

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