S3 Partners says cannabis shorts gained US$431.9 million during December, thanks in part to activity surrounding Aphria.
December was profitable for short sellers in the cannabis sector, says a new market report.
According to a document from S3 Partners, a financial technology and analytics firm, cannabis shorts made US$431.9 million during December, with a direct increase in short interest and shares shorted for one particular stock.
Aphria (NYSE:APHA,TSX:APHA) was the only stock to see both its short interest and the amount of shares shorted increase during the reviewed period, S3 Partners said.
“Aphria short sellers were actively shorting into its price decline, more than tripling the size of their short bets since the beginning of November,” wrote Ihor Dusaniwsky, managing director of predictive analytics with S3 Partners.
Aphria faced a 72-percent increase in amount of shares shorted for the period. Meanwhile, short interest in the stock rose from US$131 million at the start of December to US$222 million by last Friday (December 28).
Shares of the Canadian licensed producer have been volatile after uncertainty from a short seller report questioning its acquisitions in Latin America and the characters associated with those purchases.
Additionally, last Thursday (December 27) Aphria received a takeover bid from Green Growth Brands (CSE:GGB). The Columbus, Ohio-based multi-state operator made an offer to combine the two companies’ operations across the US, Canada and globally.
The report indicates that a total decline in short exposure for the cannabis space seen in December wasn’t due to short sellers covering their positions, but instead because of an overall decline in share prices across the sector.
Upcoming landscape for cannabis short sellers
In the S3 Partners report, Dusaniwsky projects the uptick in mergers and acquisitions (M&A) within the cannabis space could lead to an “increase short covering boosting stock price performance.”
“If stocks continue their recent upward trend, shorts may look to cover some of their exposure and realize their profits before they disappear in a puff of smoke,” he states.
S3 Partners indicates a boom in the US cannabis market alongside growing efforts for legalization in Canada and the entrance of the hemp market will lead to more takeovers in the space.
Dena Jalbert, founder and CEO of Align Business Advisory Services, previously told the Investing News Network (INN) that she also expects an uptick in M&A for the cannabis industry.
Short selling in the cannabis space has become popular with investors evaluating the volatile sector.
Charles Taerk, president and CEO of Faircourt Asset Management, explained to INN that short sellers have gravitated towards cannabis since they look for newer sectors with growth and “a perceived amount of volatility” to stake positions.
During a two-day period of weakness in October following Canadian legalization of recreational products, short sellers made gains of US$450 million.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Green Growth Brands is a client of the Investing News Network. This article is not paid-for content.