Cannabis Stock Rally Puts Short Sellers In The Red For 2020

Cannabis short sellers got off to a hot start in 2020 after netting nearly $1 billion in profits in 2019. However, cannabis stocks have caught fire in recent weeks, and short sellers’ 2020 profits are not up in smoke.

S3 Partners analyst Ihor Dusaniwsky said Monday’s big rally in cannabis stocks generated a $123 million loss for short sellers and brough year-to-date 2020 short seller returns into negative territory at a $119 million loss.

Dusaniwsky said S3’s portfolio of 240 U.S. and Canada-listed cannabis stocks currently has $2.81 billion in total short interest. In the past month, Dusaniwsky said short sellers have added $147 million to their positions.

The silver lining for cannabis short sellers in 2020 is that borrow fees have been dropping. Dusaniwsky said average borrow fees for the top 20 most shorted cannabis stocks are down 5.1% year-to-date. Despite the decline in fees, cannabis short sellers are still paying more than $1.46 million daily to maintain their positions.

Most Shorted Cannabis Stocks

Here are the five most heavily shorted cannabis stocks today by short interest, according to S3:

• Canopy Growth Corp CGC, $791.9 million.
• GW Pharmaceuticals PLC- ADR GWPH, $488.6 million.
• Cronos Group Inc CRON, $289.2 million.
• Aurora Cannabis Inc ACB, $186.8 million.
• Aphria Inc APHA, $175.6 million.

Dusaniwsky said heavy losses by cannabis short sellers once again raises the possibility of short squeezes in the cannabis space. He said traders looking for the most likely short squeeze candidates should focus on stocks with the highest borrow fees that have generated the biggest losses for short sellers year-to-date. Aurora, Aphria and Tilray Inc TLRY short sellers are all in the red in 2020 and are paying stock borrow fees of greater than 60%.

Benzinga’s Take

Given the volatility and unpredictability in the cannabis group and the fact that it's so expensive just to maintain a position, shorting cannabis stocks in 2020 is very risky business. Short sellers still sitting on large cannabis gains from 2019 should consider taking profits on at least a portion of their positions.

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

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