Market Overview

Cannabis Short Sellers Bank $200M In Two Days

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Cannabis Short Sellers Bank $200M In Two Days

It’s been a brutal year for cannabis investors, with the ETF MANAGERS TR/TIERRA XP LATIN AME (NYSE: MJ) down another 6.2% this week following a Bank of America downgrade of Canopy Growth Corp (NYSE: CGC) last week. Canopy carries one of the largest short positions in the cannabis group, but the stock’s dive has dragged down its cannabis peers as well.

Short sellers have aggressively piled into the cannabis space in 2019, with short interest up 55% this year to $4.5 billion.

Short sellers are paying a steep price to bet against cannabis, with the average cost to borrow at 26.3% for cannabis stocks compared to just 0.84% for the overall domestic equity market.

Canopy shares are now down 18.8% year to date, netting short sellers more than $137 million in profits. On Friday and Monday alone, cannabis short sellers earned more than $200 million in profits, with those profits rising even more on Tuesday morning.

See Also: Analyst Says Canopy Growth Can Outlast Near-Term Headwinds

Short Squeeze In Play?

Despite the year-to-date gains, S3 Partners analyst Ihor Dusaniwsky said cannabis short sellers were adding to their positions rather than cashing out and covering in September. Aurora Cannabis Inc (NYSE: ACB) and Hexo Corp (NYSE: HEXO) saw the two largest increased in their outstanding short positions last month.

“Short selling profitability over the last two quarters has lessened the possibility of multi-stock short squeezes in the cannabis sector, but continued high stock borrow rates will continue to slowly squeeze some shorts out of their positions as their profits slowly erode away,” Dusaniwsky said in a report.

Here are the five largest cannabis short positions following Monday’s volatile session:

  • Canopy Growth - $1.20 billion short interest.
  • Aurora Cannabis - $759.5 million short interest.
  • GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH) - $459.4 million short interest.
  • Cronos Group Inc (NASDAQ: CRON) - $420.7 million short interest.

Benzinga's Take

Cannabis stocks will likely continue to be volatile in the near-term while the industry matures. Both long buyers and short sellers should understand bets on individual stocks in either direction remain high risk/high reward plays at this stage.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Click here for more information about the upcoming Benzinga Cannabis Capital Conference Oct. 22-23 in Chicago.

Posted-In: Ihor DusaniwskyAnalyst Color Cannabis Short Sellers Top Stories Markets Analyst Ratings Trading Ideas Best of Benzinga

 

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