A multibillion-dollar hedge fund is not high on marijuana stocks.



Lakewood Capital Management, led by Anthony Bozza, revealed short positions in Canopy Growth and Aurora Cannabis, according to the firm's fourth-quarter investor letter sent Wednesday and obtained by CNBC. The firm has about $5 billion in assets under management.



"It has been hard to come across a retail investor rag or stock blog without hearing about some way to play this theme, and countless web sites are now devoted to investing in this exciting industry," Bozza wrote. "Despite recent mania around the legalization of recreational pot in California, there is a little problem: none of these companies sell at all into California (or anywhere else in the U.S. for that matter), since that would, of course, be illegal."



Bozza notes that much of the "appeal" surrounding these stocks recently stems from "regulatory momentum, constant press coverage, growing public acceptance, an absence of large incumbents and an enormous, rapidly expanding market opportunity." But, he adds, that the barriers to entry for the industry are very low and that the number of licensed producers in Canada is growing rapidly.



Bozza estimates that Canopy Growth's production capacity can be recreated for less than 150 million Canadian dollars and Aurora's for CA$100 million. Canopy Growth's market cap is around CA$6.6 billion, while Aurora's is CA$6.2 billion.



"Simply, we believe it is not a matter of if, but when these stock prices collapse...otherwise we should all be moving to Canada and growing pot," Bozza wrote.

For its part, Aurora was not troubled by the Lakewood position.

"We don't worry too much about shorts," said Cam Battley, the company's chief corporate officer. " Shorts on us and other companies in the sector have been forced to cover repeatedly."



Bozza said that Lakewood's net return for 2017 was 8.3 percent with "nearly everything" working on the long side. The firm's shorts were a bit more challenged.



Like other long-short equity hedge fund managers, Bozza remains frustrated by the way the market is measuring growth versus value stocks. Higher-valued growth stocks outperformed value stocks again last year, he said.



"This dynamic has created ongoing challenges for many investors that employ value-oriented long approaches as well as stock-specific short selling approaches like we do here at Lakewood," Bozza wrote. "While I unfortunately have no idea when value investing will be particularly 'in vogue' and when higher-valued stocks may once again sharply lag the broader market (as they have historically done), I am certain such an environment will inevitably return.



Bozza also disclosed a long investment in BMW.



Lakewood declined to comment. Canopy and Aurora did not respond to requests seeking comment.