As cannabis stocks continue a decline following the legalization of adult-use sales in Canada, a new report shows short sellers are racking in gains.

After taking hits cannabis short sellers are now seeing gains again as the investing tactic made US$450 million during two trading days, according to a market report released on Tuesday (October 23) from research firm S3 Partners.

The note highlights the sum made by shorts on Monday (October 23) and Tuesday and indicates these gains have cut approximately a third of the year-to-date losses for shorts.

Gains for short sellers from the top 20 cannabis stocks resulted in US$435.5 million during the two trading days highlighted.

Since legalization on October 17, cannabis stocks have taken a hit as a massive sell off has taken hold in the public space.

Marijuana exchange-traded funds (ETFs), such as the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) and the Evolve Marijuana ETF (TSX:SEED), have dropped in value 23.1 percent and 16.90 percent since legalization.

Cannabis stocks such as Aurora Cannabis (NYSE:ACB,TSX:ACB), Canopy Growth (NYSE:CGC,TSX:WEED) and Tilray (NASDAQ:TLRY) provided the top gainers for shorts.

Respectively, each stock created a return of US$108.1 million, US$99.6 million and US$65.1 million.

Short selling is a move by an investor to sell a borrowed security based on the prediction that the stock will go down and will be bought back at a lower price.

S3 explained shorting positions have gained popularity on cannabis stocks in the US public markets. The firm also projects even more shorting depending on the costs involved:

If the cost to borrow cannabis stocks begins to cheapen in the larger cap names, we may see more short sellers enter this over-heated sector looking for stock prices to ease back down to more reasonable value based multiples.

Shorting pot stocks continues to be a pricy move

The costs for shorting remain high as the average fee for an outstanding short position is 15.43 percent.

S3 wrote one of the reasons shorting is so expensive in this sector is due to limited institutional investors in the space. Despite its booming path in 2018, cannabis stocks have faced scrutiny and little participation, so far, from the US investor audience.

As more cannabis companies migrate their stock listings to the US, a wider investor audience has now been able to gain exposure in the market.

“Once institutional ownership increases in the sector we can expect stock borrow costs to decline significantly,” the report said.

Some of the popular stocks getting shorted recently, according to S3, are cannabis producers Tilray, Canopy Growth and Aphria’s (OTC:APPHQF) US listing.

On Wednesday (October 24), Aphria obtained approval from the New York Stock Exchange (NYSE) to list its shares. It is expected for Aphria to delist from the OTC as it uplists to the premier exchange.

Tilray remains the most expensive short in the cannabis space, with a nearly 72 percent cost fee for the borrowing position.

In September, shorting cannabis stocks had become an expensive manoeuvre leading up to legalization.

“Short sellers are positioning themselves for a pullback in what they believe is an overheated sector, but holding on to their positions is becoming an expensive proposition,” S3 previously indicated.

Investor takeaway

Charles Taerk, president and CEO of Faircourt Asset Management, previously told the Investing News Network (INN) short sellers have gravitated towards cannabis since they look for newer sectors with growth and “a perceived amount of volatility,” to stake positions.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

US Election 2020 and Cannabis

Investing in cannabis? Read what experts have to say about cannabis and the US Election!

Codebase Ventures Inc. (“Codebase” or the “Company”) (CSE:CODE)(FSE:C5B)(OTCQB:BKLLF) announces it has completed a first closing of a non-brokered private placement of up to $2,000,000. The Company accepted subscriptions for 13,740,000 units at a price of $0.05 per unit, for gross proceeds of $687,000. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at $0.075 for a period of two years from the date of closing, subject to the option of the Company to accelerate the expiry date in the event that its shares trade at $0.15 or more for 10 consecutive days

The Company paid $18,000 in cash and issued 160,000 warrants on the same terms as noted above to qualified finders. Securities issued pursuant to this tranche are subject to trading restrictions until April 5, 2021. The Company is expecting to complete the financing by December 16, 2020. Proceeds will be used for working capital and to fund future investments.

Keep reading... Show less

Hill Street Beverage Company Inc. (TSXV: BEER) (“Hill Street” or the “Company”), announces that further to its press release dated December 3, 2020, the TSX Venture Exchange has approved the repricing of 19,405,804 warrants of the Company that were originally issued on July 27, 2018, to $0.10. These warrants are set to expire on December 31, 2020.

For anybody wishing to exercise these Warrants, please contact the Chief Executive Officer, Terry Donnelly at the particulars below.

Keep reading... Show less

Wall Street Reporter, the trusted name in financial news since 1843, has published reports on the latest comments and insights from leaders at: Tilray, Inc. (NASDAQ: TLRY), Icanic Brands (OTC: ICNAF) (CSE: ICAN), Aurora Cannabis (NYSE: ACB) (TSX: ACB), and HEXO Corp. (NYSE: HEXO)

Cannabis leaders are focusing on innovation in premium branding, global expansion, and tight operational execution in the drive towards profitability. Wall Street Reporter highlights the latest comments from industry thought leaders:

Keep reading... Show less

TransCanna Holdings Inc. (CSE: TCAN) (FSE: TH8) (“TransCanna” or the “Company”) is pleased to announce that it has closed the 2nd and final tranche of its Unit financing. In connection with the closing, the Company issued 1,356,873 Units at a price of $0.55 per Unit, for gross proceeds of $746,280.15. Each Unit consists of one (1) common share and one (1) warrant. Each warrant entitles the holder to purchase one common share of the Company, at an exercise price of $0.75 per share, for a period of two years from the date of issuance. The warrants are subject to an acceleration right that allows the Company to give notice of an earlier expiry date if the Company’s share price on the CSE (or such other stock exchange the Company’s shares may be trading on) is equal to or greater than $1.25 for a period of 20 consecutive trading days. Finder’s fees of $42,542, 3,200 Finder’s shares and 80,550 Finder’s warrants were issued in connection with finder’s fees payable.

In total, the Company raised gross proceeds of $1,757,180 and issued 3,194,873 Units.

Keep reading... Show less

 Sweet Earth Holdings Corp. (CSE: SE) (FSE: 1KZ1) (OTCQB: SEHCF) (“Sweet Earth” the “Company”) is pleased to announce that it has received full Depository Trust Company (“DTC”) eligibility in the United States. On October 20, 2020, Sweet Earth announced that its shares had been listed on the United States’ Over-The-Counter Bulletin (“OTCQB”) under the ticker SEHCF.

DTC status means that Sweet Earth shares are now eligible to be transferred between brokerage accounts within the United States and significantly augments the ease in which American-based investors are able to trade Sweet Earth shares.

Keep reading... Show less