After netting nearly $1 billion in profits in 2019, cannabis short sellers got off to a strong start in 2020 as well. However, cannabis stocks have taken off in recent weeks, and cannabis short sellers are feeling the pain.
S3 Partners analyst Ihor Dusaniwsky said Thursday that cannabis short sellers are down $641 million in the month of May, and their year-to-date profits are down to just $180.1 million.
Dusaniwsky said S3’s portfolio of 240 U.S. and Canada-listed cannabis stocks currently has $2.8 billion in total short interest. In the past week, Dusaniwsky said short sellers have added $76 million to their positions.
To make matters worse for cannabis short sellers, borrow fees have been on the rise. Dusaniwsky said average borrow fees for the top 20 most shorted cannabis stocks are up 12.8% over the past month to 32.1%. Cannabis short sellers are now paying more than $2.55 million in daily financing cost.
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Most Shorted Cannabis Stocks
Here are the five most heavily shorted cannabis stocks today by short interest, according to S3:
- Canopy Growth Corp (NYSE: CGC), $913.7 million.
- GW Pharmaceuticals PLC (NASDAQ: GWPH), $656.1 million.
- Aurora Cannabis Inc (NYSE: ACB), $186.8 million.
- Cronos Group Inc (NASDAQ: CRON), $307.3 million.
- Aphria Inc (NYSE: APHA), $143.5 million.
Dusaniwsky said traders looking for the most likely short squeeze candidates should focus on stocks with the highest borrow fees that have generated the biggest losses for short sellers year to date.
“Mark-to-market losses coupled with rising stock borrow rates are priming the pump for potential short squeezes in several cannabis stocks,” Dusaniwsky wrote.
Aurora may be the top candidate for a squeeze given the stock’s high borrow rate and the heavy losses inflicted on short sellers in the past month.
Given the volatility and unpredictability in the cannabis group and the fact that it's so expensive just to maintain a position, shorting cannabis stocks in 2020 is very risky business. Short sellers still sitting on large cannabis gains from 2019 should consider taking profits on at least a portion of their positions.