The rush in cannabis stocks has led short sellers to spend more betting against the industry, a new market report says.

A Monday (September 17) report from S3, a research firm employing data analytics for investment opportunities, shows that short sellers of cannabis stocks are down US$490 million year-to-date.


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

“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,” the report says.

The report shows that shorting cannabis stocks has increased this year, with short interest reaching US$1.5 billion across 33 stocks and exchange-traded funds (ETFs). The research firm states that most of the uptick in shorting has gone against Canopy Growth (NYSE:CGC,TSX:WEED) and Tilray (NASDAQ:TLRY).

According to S3, shorting cannabis stocks is becoming more expensive as these shares heat up in the public sector.

The firm explains that investors short selling these stocks are paying over US$2.4 million per day in stock borrow financing costs.

With ETF shorting, investors usually have a cheaper option to deploy bets against a sector, but with cannabis the ETFs have a 20.8 percent cost-to-borrow fee, the data indicates.

The report also shows short sellers are struggling to find new stock borrows for cannabis securities.

Stock borrows for Tilray increased between 450 and 600 percent on Monday, and those for Cronos Group (NASDAQ:CRON,TSX:CRON) and the Green Organic Dutchman (TSX:TGOD) have risen 50 percent for fee levels.

S3 predicts that long shareholders in the cannabis space could now become the “controlling force” of stock price movement with these issuers.

“Short sale activity will be relatively insignificant relative to long buying and selling pressure,” S3 states. “If short sellers get squeezed due to the triple threat of high stock prices, high stock borrow fees and stock loan recalls they will be forced to buy to cover their exposure.”

US Election 2020 and Cannabis

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

However, the report notes that short sellers have an opportunity to end up on top if long holders start selling and lending programs regain stock to offer.

“[S]horts will find it easier to build their positions and offset some of the bullish sentiment we’ve seen in the sector over the last 5 weeks,” the report continues. “If short sellers can continue their third and fourth quarter growth then the cannabis rally may be on its last drags.”

Short selling tactic gains spotlight in cannabis market

This year short selling has been highlighted in the cannabis public space as companies combat the tactic.

Most recently, Cronos faced a decline in its share price when Andrew Left, founder of Citron Research, publicly shorted the Canadian producer.

report issued on August 30 by Citron gave Cronos a price target of US$3.50 compared at the time a price of US$12.74.

Shares of Cronos declined rapidly and suffered a loss of 28.41 percent after the report went live.

Outside of calling out short sellers and reminding investors of the company’s path, few cannabis companies have taken a stance against the activity.

As a way to combat short sellers, Namaste Technologies (TSXV:N) asked investors in May to sign a pledge and only hold or increase their stake in the company for 90 days.

The end result of this pledge was a party in Quebec last Wednesday (September 12) for Namaste shareholders.

Don’t forget to follow us @INN_Cannabis for real-time news updates and stay tuned for cannabis stories from the MoneyShow!

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