Cannabis Shorts Face Downturn Pressure

- November 21st, 2019

A new report from short seller firm S3 Analytics says shorts of cannabis stocks are down after a few positive announcements for the industry, including the approval of a new cannabis bill in the US.

A few developments in the marijuana industry have kept shorts of cannabis stocks at bay, a new report from research firm S3 Analytics stated.

On Wednesday (November 20), the firm published a study indicating short sellers of the marijuana public market were down US$272 million during the trading session, for the top 20 cannabis stocks tracked by S3 Analytics.

The report noted that short exposure for cannabis is up 16 percent so far this year for a total of US$389 million.

“Short selling is fairly concentrated to a handful of names, with only six stocks topping US$100 million of short interest,” the report said. It was authored by Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners — the parent firm of S3 Analytics.

The researcher identified that the short market has seen a year-long trend of net short selling for the top 20 cannabis names and has so far reached US$1.41 billion.

“The increased short selling was needed to maintain overall short exposure in the sector as sector-wide price weakness decreased the notional value of the total short positions by just over US$1 billion,” Dusaniwsky wrote.

According to the report, a combination of the positive vote for the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) by the House Judiciary Committee helped cause the drop for shorts.

Alongside the vote, the following developments also caused the short dip:

  • Canopy Growth (NYSE:CGC,TSX:WEED) obtaining a rate raise from the wealth management division of Bank of America (NYSE:BAC);
  • Cronos Group (NASDAQ:CRON,TSX:CRON) investee Altria Group (NYSE:MO) upping its stake in the marijuana company to keep a 45 percent ownership of Cronos; and
  • The Green Organic Dutchman (TSX:TGOD,OTCQX:TGODF) announcing distribution for its products in Alberta, Manitoba and Nova Scotia.

Dusaniwsky said the top shorted stocks from the leading pack of 20 were Cronos, Canopy Growth and GW Pharma (NYSE:GWPH).

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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