It’s been a brutal year for cannabis investors, with the ETF MANAGERS TR/TIERRA XP LATIN AME (NYSE: MJ) down another 1.2% this month ahead of a series of major cannabis earnings reports this week.
Cronos Group Inc (NASDAQ: CRON) shares traded just 1.2% higher on Tuesday morning after reporting 238% revenue growth in the third quarter, but cannabis short sellers are still sitting on large November gains as cannabis earnings season kicks off.
Short sellers have aggressively piled into the cannabis space in 2019, with short interest up 39% this year to $4.1 billion.
Short sellers are paying a steep price to bet against cannabis, with the average cost to borrow at 21.6% for cannabis stocks.
Tilray Inc (NASDAQ: TLRY) is the most expensive cannabis stock, with a 58.8% U.S. borrow fee.
Canopy Growth Corp (NYSE: CGC) shares are now down 24.4% year-to-date, making Canopy the most profitable cannabis short of 2019. Canopy shorts are up $309 million year-to-date ahead of third-quarter earnings.
In November alone, cannabis short sellers have earned $190 million in profits.
Short Squeeze In Play?
Given the year-to-date gains, S3 Partners analyst Ihor Dusaniwsky said cannabis short sellers have no reason to cover their short positions at this point.
In the past month, short sellers have added more than $20 million each to their positions in Canopy and Aphria Inc (NYSE: APHA) alone.
“If sector wide price weakness continues, we should seea continued slow and steady increase of short selling in the cannabis sector,” Dusaniwsky said in a Nov. 8 report.
The following are the five largest cannabis short positions ahead of this week’s earnings reports:
- Canopy Growth: $1.03 billion in short interest.
- Aurora Cannabis Inc (NYSE: ACB): $670.7 million in short interest.
- GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH): $561.9 million in short interest.
- Cronos: $389.7 million in short interest.
- Tilray: $195.7 million in short interest.
Cannabis stocks will likely continue to be volatile in the near-term while the industry matures. Both long buyers and short sellers should understand bets on individual stocks in either direction remain high-risk, high-reward plays at this stage.
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