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Marijuana Shorts Are Defying the Explosive Rally in Equities

Aoyon Ashraf
The bud of a cannabis plant is seen on plant inside the KannaSwiss GmbH greenhouse facility near Kerzers, Switzerland, on Thursday, Oct. 19, 2017. KannaSwiss, a company founded in 2014, is already producing marijuana that meets Switzerland’s legal standard containing no more than 1% Tetrahydrocannabinol—known as THC, the psychoactive chemical that gets you high. Photographer: Stefan Wermuth/Bloomberg

Cannabis stocks are proving one investor’s rally may be another’s short opportunity.

The marijuana sector has been in the midst of parabolic explosions to the upside, with stocks like Tilray Inc. surging more than 500 percent since it began trading in July. Yet, short sellers aren’t balking, instead selectively adding to their positions in cannabis stocks, according to financial analytics firm IHS Markit.

Short sellers have increased positions in 17 marijuana stocks since August 1, pushing short balances in the North American weed sector to an all-time high, according to Markit. Short sellers have maintained their positions in Tilray, creating a scarcity of shares to borrow for new short stakes, the data firm said. It’s also gotten expensive, with the cost of financing a short position for Tilray shooting up to 370 percent, according to data from financial analytics firm S3 Partners LLC as of September 12.
Aurora Cannabis Inc. saw a 76 percent spike in short interest since August 2, while Cronos Group Inc.’s shorts rose 30 percent, according to Markit. Among weed stocks with declining short interest, Canopy Growth Corp. saw positions fall by 39 percent while Aphria Inc. short interest was cut by 18 percent. Short interest in Tilray fell by 9 percent since August 2, Markit said.

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The increased volatility is getting the attention of options traders as well. On Thursday, an options buyer placed a sizable hedge against the U.S. exchange-traded fund tracking the marijuana industry in a bet that pot stocks won’t continue to soar.

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