Total short interest in the 240 U.S. and Canadian cannabis stocks in our portfolio is $2.81 billion. The top twenty most shorted stocks in the sector is $2.23 billion, 79% of the total. Short selling continues to be concentrated in just a handful of names which have the trading and stock borrow liquidity to support active and sizable short side activity. Today’s +5.5% rally in the cannabis sector has generated -$123 million in mark-to-market losses, bringing month-to-date losses to -$130 million, and year-to-date losses to -$119 million for the top twenty most shorted stocks in the sector.
The largest stocks in the Cannabis Sector are:
Short selling in the cannabis sector has been relatively active over the last month with +$147 million of new short selling activity, and +$32 million worth of net short selling over the last week. We’ve seen over +$30 million of new short selling over the last month in Aurora Cannabis (ACB US, ACB CN), Aphria Inc (APHA US, APHA CN), Tilray Inc (TLRY US) and GW Pharma (GWPH US). On the flip side of the coin, only Cronos group (CRON US, CRON CN) had significant short covering, with -$7 million worth of shares bought back.
While stock borrow costs have decreased for the year, with the average stock borrow fee of the top twenty most shorted names down -5.12%, there has been an increase in borrow costs over the last week and month. Overall, short sellers in the top twenty are paying $1.46 million in daily stock borrow financing costs, which is down -48% from the $2.82 million per day they were paying on January 1st. Stock borrow costs have increased by 3.59% fee over the last week as stock borrow costs in Aurora Cannabis (ACB US, ACB CN) and Aphria Inc (APHA US, APHA CN) increased by over +20% fee. Stock borrow costs in Neptune Wellness (NEPT US, NEPT CN( and MediPharm Labs (MEDIF US, LABS CN) both decreased by over -31% fee, but since their total short interest is minimal, it did not have a large effect on the average stock borrow cost for the group.
The top twenty shorts are down -$123 million in mark-to-market losses on today’s +5.5% rally in the sector. While most of the stocks in the top twenty were down, the largest declines in stock prices occurred in Aleafia Health (ALEAF US. ALEF CN) -22%, Pyxus Intl (PYX US) -16%; MedMen Enterprises (MMNFF US, MMEN CN) -16%; Curaleaf (CURLF US, CURA CN) -9% and Hexo (HEXO US, HEXO CN) -9%. The top twenty shorts, who were up +$11 million in mark-to-market profits in the first quarter, are now down -$119 in mark-to-market losses for the year.
With the twenty most shorted cannabis stocks sliding into loss territory, the possibility of short squeezes once again come into play. Although year-to-date losses are minimal right now, if the sector rally continues, we will see some cannabis stocks getting into short squeeze territory. Canopy Growth (CGC US, WEED CN) shorts are already down -8.7% and are paying a 15% stock borrow fee; Aurora Cannabis (ACB US, ACB CN) shorts are down -3.5% and paying a 76% stock borrow fee; Aphria (APHA US, APHA CN) shorts are down -6.3% and paying a 60% stock borrow fee; Tilray (TLRY US) shorts are down -5.5% and paying a 94% stock borrow fee; and Hexo (HEXO US, HEXO CN) shorts are down -3.8% and paying a 53% stock borrow fee.
Cannabis stocks with high stock borrow fees and mark-to-market losses will be prime candidates for short squeezes in the future, especially if losses continue to mount and stock loan availability remains tight.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index or country-wide basis allowing investors\traders to better manage their existing long and short positions as well as generate new trade ideas.
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Managing Director Predictive Analytics, S3 Partners, LLC
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