Cannabis Short Sellers Now Down $473M In 2020 Following Tilray-Aphria Merger

After a brutal start to the year for cannabis investors, the ETF MANAGERS TR/TIERRA XP LATIN AME (NYSE: MJ) has rallied 36% in the past three months, propelled in large part by bullish U.S. election results in November.

This week, shares of Tilray Inc (NASDAQ: TLRY) rallied after the company announced a merger with Canadian competitor Aphria Inc (NASDAQ: APHA).

The Numbers: Short sellers have aggressively piled into cannabis stocks in the past nine months, with cannabis stock short interest up about $1.15 billion to $2.81 billion since late March. The only good news for cannabis short sellers since March is that average stock borrow fees in the space have dropped from 30.3% to just 5%, according to S3 Partners analyst Ihor Dusaniwsky.

As of this week, Green Organic Dutchman Holdings Ltd (OTC: TGODF) is the most expensive cannabis stock to short with a 46.1% borrow fee.

Despite the recent rally, it hasn’t been all green for cannabis stocks this year. As of Wednesday, Aurora Cannabis Inc (NYSE: ACB) has been the most profitable short of the year in the cannabis group with Aurora short sellers sitting on a year-to-date profit of $123.8 million.

Related Link: Quantumscape, Kodak Among Analyst's Top Short Squeeze Candidates

Consolidation Ahead? Cannabis short sellers have trimmed their year-to-date losses by $245.1 million so far in the month of December. However, thanks in part to the election, cannabis short sellers are still down $473.6 million overall in 2020.

Dusaniwsky said Wednesday that traders should watch the most shorted cannabis stocks for signs of a short squeeze, especially if the Tilray-Aphria merger marks the beginning of a consolidation wave in the industry.

“The underlying reasons for a short squeeze in the Cannabis sector were decreasing with the recent decrease in stock borrow costs and recent increase in mark-to-market profits, but the Tilray-Aphria merger may tighten the squeeze once again,” Dusaniwsky said.

The following are the five largest cannabis short positions as of Wednesday:

• Canopy Growth Corp (NASDAQ: CGC): $1.17 billion in short interest.
• GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH): $333.4 million in short interest.
• Aurora Cannabis: $325.2 million in short interest.
• Cronos Group Inc (NASDAQ: CRON): $318.9 million in short interest.
• Aphria: $236.9 million in short interest.

Benzinga’s Take: Cannabis stocks will likely continue to be volatile in the near term while the industry matures. Long-term investors should continue to monitor the progress ofU.S. state-by-state and federal legalization efforts given the U.S. market will likely be the biggest opportunity for the industry in coming years.