Trulieve (TCNNF) is down sharply today on big volume following a report by short-sellers Grizzly Reports that accuses the company and insiders of numerous improprieties, ranging from political cronyism and corruption to overvaluation of assets to misrepresentation of financial relationships.
I have read the entire report. You can read it here.
And here’s what I think.
First, you should recognize that this is primarily an attempt to make money from selling short—an attempt that so far has been successful for the producers of the report.
In that way it’s reminiscent of the attack on Aphria (APHA) a year ago—an attack that also succeeded in the short term. You can see the gap down in APHA last December and what the stock has done since.
Aphria is still in business and I believe Trulieve will still be in business—and still be the leading seller of medical marijuana in Florida—a year from now.
Now, this is not to say that Grizzly Reports’ claims have no merit. I have previously mentioned the FBI’s interest in JT Burnette, and I am not surprised to find that such well-connected people were able to grow the company rapidly by dealing with friends and associates.
But there is nothing in here to deny that Trulieve has succeeded in opening 41 medical marijuana distribution centers in Florida, and nothing to make me think that the company can’t keep growing, albeit at a slower pace.
However, I might be wrong. It is possible that there is enough meat in these allegations to attract the attention of the authorities and that there will be a real cost to Trulieve, business-wise, in dealing with the authorities. And it is possible that the strain of dealing with the fallout of this report will negatively impact the company’s growth.
However, investing is a game of odds, and with TCNNF off its recent highs and the “bad news” out, I don’t think this is the time to give up on the stock.
In fact, I have previously mentioned that Trulieve was by far the best-performing stock in the cannabis sector in recent months, and also mentioned that it is difficult for a stock to diverge notably from its sector’s peers—and with today’s correction, TCNNF now looks more like its peers.
WHAT TO DO NOW
My plan at the moment is to stick with TCNNF in Cabot Marijuana Investor. Yes, we have a small loss, but there’s a decent chance the bottom is near, and there is substantial upside from here. My goal has always been to hold the top cannabis companies in both the U.S. and Canada, and in my book, Trulieve is still one of them.
That said, what is right for my portfolio may not be right for yours. If you have been overweight in the stock, you may want to lighten up, particularly if there’s a decent rebound. And if you have not bought the stock yet and were waiting for an opportunity, you can grab some shares here. The best time to buy a growth stock is when the news is terrible and sellers have thrown in the towel.
Note: I’ll be doing a full update on all the stocks in Cabot Marijuana Investor on Thursday, December 19.