Publicly traded cannabis stocks have always been subject to a whipsaw volatility and the latest increase in short interest has only fueled those wild swings. Short selling is a trading strategy where investors bet on a stock selling off. They sell the stock at a high price, betting the price will fall and then they buy the stock at a lower price to cover the short position.
For example, a trader could take a short position in Canopy Growth (NASDAQ: CGC) (TSX: WEED) at $10 with the bet the stock would trade down to say $7. Then they would buy the shares at $7.00 to cover the short position. They bank the $3 difference in this example. It’s the opposite of buying at $7 and then waiting for the stock to reach $10 to sell.
If the stock moves in the opposite direction, in this case moving to $11, then the shorts hurriedly buy to cut those losses. This creates a short squeeze, that often runs the price up even higher as the shorts rush to outdo each other.
Most stock sectors experience some short action, but when the numbers jump it’s worth keeping an eye on. In the last few weeks, those short positions have jumped dramatically. There are now $1 billion of shorted cannabis stocks.
Shorts increase
According to new Financial Industry Regulatory Authority (FINRA) data, the total short positions in cannabis stocks have increased as such:
$757,630,223 – Mar 1, 2024
$581,570,514 – Feb 15, 2024
$515,681,726 – Jan 30, 2024
$581,570,514 – Feb 15, 2024
$515,681,726 – Jan 30, 2024
FINRA also released top short positions in cannabis:
$232,378,500 – IIPR
$203,292,300 – TLRY
$183,064,097 – MSOS
$24,112,350 – CURLF
$15,134,000 – CGC
$203,292,300 – TLRY
$183,064,097 – MSOS
$24,112,350 – CURLF
$15,134,000 – CGC
The Canadian version of FINRA is the Investment Industry Regulatory Organization of Canada (IIROC) and it published the massive increase in short positions on Canadian exchanges:
$36,844,949 – WEED.TO, up 277%
$19,858,409 – CRON.TO
$17,704,077 – TLRY.TO
$12,679,035 – ACB.TO, up 112%
$9,137,026 – OGI.TO, up 316%
$19,858,409 – CRON.TO
$17,704,077 – TLRY.TO
$12,679,035 – ACB.TO, up 112%
$9,137,026 – OGI.TO, up 316%
When FINRA and IIROC data are combined, Canopy Growth is the company with the most shorted stock. Currently, 20% of Canopy’s outstanding stock is shorted. Not surprising, as shorts try to game the news cycle, and Canopy’s recent shareholder vote on splitting the company in two is big news.
Trader Jason Spatafora, whose X handle is @WolfofWeedSt, wrote online, “The same shorts are also long and taking advantage of retail investors trying to front-run news that isn’t solidified. They take advantage of the FOMO (fear of missing out) and position short to hedge their longs. Once they see weakness they take profit on the longs and push the top names down to profit on their shorts. They’ve been double dipping for the last two years.”
The moves are often around anticipated news. For example, the rescheduling talk has fueled crazy swings in shorts. As chatter centers on a particular event in Washington D.C., the trading increases. Then when rescheduling doesn’t happen, those hopeful cannabis stockholders get crushed as the shorts swoop in.
VP of Corporate Development at C21 Investments Inc. (OTC: CXXIF) Sam Armenia said, “There is a lack of custodians in cannabis and many prime brokers walked away from cannabis, so it’s an illiquid market. The vast majority of trading is algorithmic. There is also a lack of incremental buyers, so the algos are tuned to take advantage of conditions in the market. There are active sell algos because it’s easier to push them down. We’re one of the smaller companies in the MSOS ETF, and so the smaller the name, the more illiquid.”
Noah Hamman, Founder and CEO of AdvisorShares and home of the Pure U.S. Cannabis ETF (MSOS) says he keeps an eye on it, but it doesn’t impact them.
“We don’t watch it every day, but we are aware of the moves,” he said.
Armenia says it all boils down to custody. He says that Schedule 3 or SAFE banking would remedy the problem. More institutional players would increase liquidity, making it harder for the shorts to impact the market.
The post Cannabis stock shorts have grown like weeds appeared first on Green Market Report.
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