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.
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