Bears Betting $2.1-B that a Marijuana ‘Bust’ is Coming
The total value of Short positions in global marijuana-related stocks has climbed to a record approaching $2.1-B, according an analyst at IHS Markit in Boston.
Short sellers have increased their positions amid concern that the sector is overvalued, and it’s becoming easier to find shares available to borrow for companies with a large market capitalization, he said.
“There’s still a concern about valuations,” he said Tuesday in an interview. “By any valuation metric, whether they even have positive earnings or what those earnings are, they’re certainly stretched compared to what you would traditionally see.”
While Marijuana/Cannabis stocks have retreated, the value of the nascent market is higher than it was 12 month ago.
The BI Canada Cannabis Index has almost doubled in the past year.
In Short selling, investors sell stocks that they borrowed with a view to buying them at a cheaper price later when they have to return the shares to the lender. They profit from the price difference minus the cost of borrowing.
The average cost to borrow marijuana stocks is below 20%, according to IHS data.
As of 21 May, the short position in Canopy Growth Corp.(OTCMKT:TWMJF), Canada’s largest marijuana producer, was 17.6-M/shares at a value of $486-M, while the Short interest in Aurora Cannabis Inc. (OTCMKT:ACBFF) was 46-M/shares, or $286-M, IHS data show.
Have a terrific Memorial Day weekend.