Short-Sellers Win Big Betting Against Marijuana Stocks in 2019

Short-Sellers Win Big Betting Against Marijuana Stocks in 2019

Short-sellers are winning big this year with expensive bets against marijuana stocks.

Cannabis Bears have cleared $993-M in mark-to-market gains so far in Y 2019, even after losing $132-M this month as stocks bounced off their lows, according to data from financial analytics firm S3 Partners.

Short exposure to the sector grew by $843-M or 35% in Y 2019, with most of that concentrated in 20 companies, S3 said in a report Wednesday.

The investor frenzy that had characterized the cannabis industry in Y 2018 quickly faded this year as companies missed earnings expectations and the regulatory landscape proved to be more difficult than expected.

Since March, marijuana stocks are down by about 68%, and capital markets have largely frozen for all but the strongest names.

Marijuana stocks are now among the most expensive to short, with an average borrow fee of 31% for the 20 that are most shorted. Despite that, “the sector has surprisingly been immune to short squeezes,” wrote the managing director of predictive analytics at S3.

A prolonged cannabis sector rally will be bolstered with a flurry of short covering as the high cost of short financing coupled with mark-to-market losses will result in multi-security short squeezes,” he said.

Stay tuned

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