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Why GrowGeneration Got Hammered on Monday

What happened

Considered a marijuana stock, gardening supply specialist GrowGeneration (NASDAQ: GRWG) wilted badly on Monday. Its shares fell by over 17% on Monday after the company responded to allegations from an apparent short seller.

So what

Last Friday, a company called Hindenburg Research published on its website a scathing report on GrowGeneration.

Marijuana bud on fire.

Image source: Getty Images.

Hindenburg bases its argument chiefly on the history of GrowGeneration's top managers, implying that several have engaged in fraudulent activities directly or are affiliated with individuals who have been.

"GrowGeneration's management team is one of the most questionable we have ever seen at a public company," Hindenburg wrote. "Top executives have extensive ties to alleged pump and dump schemes, organized crime, and various acts of fraud."

In response, GrowGeneration fired off a press release characterizing Hindenburg's findings as "false and defamatory statements about certain officers and directors of the company designed to provide a false impression to investors and to manipulate the market to benefit short sellers."

Now what

GrowGeneration is treating Hindenburg's attack as a criminal matter. It said it will collaborate with law enforcement in any investigation and will take measures to have Hindenburg cease and desist.

Hindenburg's report is interestingly timed. It comes shortly after GrowGeneration delivered excellent second-quarter results revealing robust growth in customer traffic and revenue, among other positive developments. The results temporarily made this marijuana stock an investor favorite.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GrowGeneration. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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