Cannabis stocks went on a spectacular run in the months prior to the Oct. 17 Canadian legalization. The overheated group has run out of steam in recent weeks, however, and short sellers have been on the winning side of the marijuana trade.
Since the end of September, popular cannabis stocks such as Canopy Growth Corp (NYSE: CGC), Tilray, Inc. (NASDAQ: TLRY) and GW Pharmaceuticals PLC-ADR (NASDAQ: GWPH) are all down more than 20 percent.
$500 Million In Profits For Short Sellers
Short sellers made more than $450 million in profits on cannabis stock during a particularly weak two-day stretch following Canadian legalization, according to S3 Analytics. Analyst Ihor Dusaniwsky said this week that short sellers are digging in on cannabis stocks and see more downside ahead, particularly in a handful of names.
“At the moment, there is a large concentration of short selling in the sector, with only seven stocks having over $100 million in short interest and the top twenty shorts in the Cannabis sector making up over 98 percent of the total short interest in the sector,” Dusaniwsky said in an Oct. 23 report.
Here’s a look at the total short interest in the top five most heavily-shorted stocks Dusaniwsky mentioned, according to S3’s latest data:
- Canopy Growth: $677 million in short interest for U.S.-listed ticker, $280 million in short interest for Canadian ticker, $181.2 million in total October profits for short sellers.
- Aurora Cannabis Inc (NYSE: ACB) $458 million in short interest for U.S.-listed ticker, $197 million in short interest for Canadian ticker, $128.9 million in total October profits for short sellers.
- GW Pharma: $315 million in short interest, $68.3 million in October profits for short sellers.
- Tilray: $306 million in short interest, $42.4 million in October profits for short sellers.
- Cronos Group Inc (NASDAQ: CRON): $236 million in short interest for U.S.-listed ticker, $37 million in short interest for Canadian ticker, $70.8 million in October profits for short sellers.
In all, S3 estimates there's roughly $2.86 billion in short interest in the cannabis sector and a total of $585.7 million in profits on those shorts this month alone.
Dusainiwsky said short sellers seem more than willing to pay the high borrow fees for many of these stocks, which average 15.4 percent for the sector.
Another way of appreciating just how aggressive the short sellers have been in cannabis tickers is to use short percent of float:
- New Age Beverages Corp (NASDAQ: NBEV): Short percent of float of 42 percent with 0.3 days to cover.
- Zynerba Pharmaceuticals Inc (NASDAQ: ZYNE): Short percent of float of 22 percent with 7.6 days to cover.
- India Globalization Capital, Inc. (NYSE: IGC): Short percent of float of 18.5 percent with 0.1 days to cover.
- Cronos: Short percent of float of 17 percent with 2.4 days to cover.
- Canopy Growth: Short percent of float of 9 percent with 1.7 days to cover.
Bottom Not Yet In?
Market enthusiasm for the booming cannabis industry has triggered a major run in cannabis stocks in 2018, but short sellers are looking at the valuations of many of these stocks and profiting as they crash back to reality. If the latest numbers are any indication, short sellers seem to be convinced the bottom is not yet in in the marijuana space.
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