Sign up Australia
Proactive Investors - Run By Investors For Investors

Shorts to hike positions in cannabis majors Canopy Growth, Aurora Cannabis, Cronos Group and Tilray, says S3 Partners

Short-sellers are betting on a reversal in what they see as an overheated, overvalued cannabis sector
Tilray product
Tilray and other cannabis stocks should draw more short-selling

Short trading in cannabis stocks is seen increasing further in the major companies of the sector because they remain a profitable, if expensive, bet for market players, a report by analytics company S3 Partners said Friday.

"We can expect more momentum short trading in the more largely shorted, more liquid and larger capitalized securities such as Canopy Growth Corp (NYSE:CGC), Aurora Cannabis Inc (NYSE:ACB), Cronos Group Inc (NASDAQ:CRON) and Tilray Inc (NASDAQ:TLRY)," said a report by Ihor Dusaniwsky, the managing director of Predictive Analytics at S3 Partners, a company that specializes in research on the short side of the market.

The rally in the cannabis sector in 2018 prompted short sellers to add billions of dollars of exposure since the middle of the year, as they bet on a reversal in what they feel is an overheated and overvalued sector.

"Short interest is now $3.35 billion in the 141 securities we track in our cannabis basket. While short interest in the sector continues to grow in 2018, exposure is very extremely concentrated, with 94% of the short interest in only 10 securities," said Dusaniwsky.

The cannabis sector gyrated sharply this week, rallying over 8% Wednesday on news that Attorney General Jeff Sessions' resignation would lead to a loosening of US cannabis policy. A day later, the stocks gave back most of their gains after investors realized immediate changes to the policy was not coming soon.

READ: Tilray shorts fell by about 45,000 in the past week, says S3 Partners

Short-selling the sector is profitable, but the cost to borrow the stock is steep, with the average borrow fee in the sector at 13.44% and short-sellers spending heavily for financing costs. The fee in other companies would usually be seen at much lower levels.

The rate to borrow Tilray stock is a 38% fee and that for Cronos is a 42% fee.

"We should expect short-selling in the cannabis sector to continue to grow, providing a slight counterbalance to the long buying frenzy and also providing trading liquidity in some of the less broadly traded securities," said Dusaniwsky.

He added: "As price volatility and momentum continues to increase in the sector, short sellers will become more active entering and exiting their positions as shorter term trades become larger Alpha generators."

Reporting by Rene Pastor, contactable on [email protected]

Join our Crypto, Blockchain and Cannabis Telegram group here
View full WEED profile View Profile

Canopy Growth Corporation Timeline

Newswire
June 28 2016

Related Articles

scientist in lab
August 31 2018
While the data bodes well for MTD201, Midatech is most excited by the validation of its Q-Sphera sustained release technology, which it is using in some of its other compounds
Cancer cells
June 27 2018
The Nottingham-based privately-owned company has made an impressive fist of developing the OMIS (Opto-magnetic Imaging Spectroscopy) cancer detection system
Oncoprex
October 18 2018
The biotech was founded by an investment group led by scientists and driven by a no-nonsense CEO whose stake is more than just business as usual

© Proactive Investors 2018

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use