Cowen Analyst Vivien Azer downgraded several cannabis stocks including Aurora Cannabis (ACB US\ACB CN) and Tilray Inc (TLRY US) which helped push cannabis sector stocks down twice as far as the general market. The top 20 shorts in our cannabis portfolio are down -6.76% in midday trading with the U.S. S&P 500 down only -3.22% and the Canadian TSX Composite down -1.64%.
Short selling in the top 20 shorts in the sector has been absent in the sector in February after shorts were down -$102 million in mark-to-market losses in January. Shares shorted in the top 20 shorts in the cannabis sector declined by -$29 million, bringing total short interest down to $3.50 billion.
With today’s +$237 million in mark-to-market gains, cannabis short sellers are again in the black, up +$107 million in mark-to-market profits for 2020. Shorts of Canopy Growth (CGC US\WEED CN) and GW Pharmaceuticals (GWPH US) are still down for the year, -$142 million and -$89 million respectively. While shorts in Aurora Cannabis +$91 million (ACB US\ACB CN); Cronos Group +$69 million (CRON US\CRON CN) and Aphria Inc +$42 million (APHA US\APHA CN) are up comfortably for the year.
With the average stock borrow cost of the top 20 most shorted stocks at over 35% fee shorting the sector is not a cheap proposition. If short selling losses continued to mount after January’s poor short performance, we might have seen some short covering in the sector. But with most of the sector’s short positions now profitable we will probably see an upsurge in sector short selling.
Stocks like Cronos Group (CRON US\CRON CN), Harvest Health & Recreation (HRVSF US\HARV CN) and Pyxus Intl (PYX US), which are relatively cheaper stock borrows and producing mark-to-market profits, may see more short selling activity relative to the expensive money losing shorts like Canopy Growth (CGC US\WEED CN) and Tilray Inc (TLRY US).
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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