Cannabis stock short sellers were down $436 million in year-to-date mark-to-market losses two days ago as cannabis related stocks rallied over the last year as seen by the Horizons Marijuana Life Sciences ETF (HMMJ CN) being up +19% in 2018 and +160% over the last year.
Yesterday cannabis based pharmaceutical company Tilray Inc (TLRY US) rose over 14% on news that it received regulatory approval to export medical cannabis flower to Germany, the largest cannabis market in Europe. Previously Tilray, Canopy Growth (WEED CN) and Cronos Group (CRON US) were only allowed to ship cannabis oil to Germany.
While Tilray’s stock price soared the rest of the cannabis related stocks pulled back significantly, the HMMJ ETF was down -9.73% even with Tilray’s large price gain. Even with a $58 million in mark-to-market losses on their Tilray positions, cannabis short sellers still managed to eke out +$16 million in mark-to-market profits.
Short sellers have been very active in the cannabis sector, with short interest climbing to $1.5 billion spread over 33 stocks and ETFs. This is a $475 million increase in short interest, +48%, since the end of the second quarter. Most of this increase was centered on increased short activity in Canopy Growth and Tilray, which were up $492 million in just over three months.
| Cannabis Sector
(in $ millions) |
Ticker | $ Short
Interest |
Change
Since 6/30 |
Borrow
Fee |
YTD
MTM P/L |
9/13-14
MTM P/L |
| Tilray Inc | TLRY US | $422 | +$333 | 154% | -$258.0 | -$10.4 |
| GW Pharma | GWPH US | $322 | +$2 | 1% | -$14.3 | -$0.6 |
| Canopy Growth | WEED CN | $300 | +$159 | 6% | -$133.6 | +$23.6 |
| Aurora Cannabis | ACB CN | $137 | -$143 | 4% | +$10.7 | +$8.3 |
| Aphria Inc | APH CN | $64 | +$22 | 12% | -$8.3 | +$2.4 |
| Cronos Group | CRON CN | $42 | +$22 | 43% | +$8.3 | +$3.2 |
| Innovative Ind Ppty’s | IIPR US | $40 | +$11 | 7% | -$4.2 | +$0.3 |
| Green Organic Dutchman | TGOD CN | $26 | -$7 | 46% | -$10.5 | +$3.7 |
| HEXO Corp | HEXO CN | $23 | +$13 | 18% | -$10.9 | +$1.3 |
| Emerald Health Thera | EMH CN | $19 | +$10 | 21% | +$6.8 | +$1.9 |
| ETFMG Alt harvest ETF | MJ US | $37 | +$20 | 18% | -$3.4 | +$2.0 |
| Hzons Marijuana Life Sc ETF | HMMJ CN | $9 | +$3 | 20% | +$0.3 | +$0.9 |
| TOTAL | $1,509 | +$475 | 20.5% | -$404.5 | +$34.5 |
The strong rally in the cannabis sector for the past year has generated sector wide mark-to-market losses for short sellers, -$405 million year-to-date, but that has not put a damper on continued short selling. Two of the worst short performers, Tilray and Canopy Growth are also have the largest increase in short selling. Tilray short sellers had a roller coaster ride over the last two days, down $54 million in mark-to-market losses yesterday and up $44 million today.
Short sellers are positioning themselves for a pullback in what they believe is an overheated sector, but keeping their positions on is becoming an expensive proposition. The average cost to borrow stocks in the Cannabis sector is 20.5% fee and short sellers are paying over $2 million/day in stock borrow financing costs. Shorting a sector ETF is usually a cheaper alternative, but the two main cannabis ETFs are going at a slightly less expensive 20% fee.
In addition to high stock borrow costs on existing short positions, it is getting very difficult or near impossible to locate stock borrows in most of the securities in the sector. New, but very small, Tilray stock borrows were going at 450% to 600% fee levels today.
Long shareholders will be controlling stock prices in the cannabis sector as there will not be enough short activity, due to stock loan tightness, to affect stock prices. If short sellers get squeezed due to high stock prices and stock loan recalls and are forced to buy to cover their exposure, and long shareholders continue to bid up cannabis stock prices the sector’s rally will continue. If longs begin selling and inventory finds its way into stock lending programs allowing shorts to build their positions, the cannabis rally may be on its last drags.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners, LLC
For more information on S3’s reporting, data and analytics solutions, email us at sales@s3partners.net
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