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By Shariq Khan and David Randall
(Reuters) – Interest from retail investors appeared to increase cannabis stocks on Wednesday, signaling that the recent trading frenzy behind Reddit favorites such as GameStop is shifting to other companies.
Shares of Tilray jumped 40% in morning trading, while shares of Canopy Growth Corp and Aurora Cannabis Inc both rose more than 12%. The ETFMG cannabis stock exchange-traded fund, whose value has more than doubled since the US presidential election in November, gained nearly 10%, while the broad S&P 500 index edged up 0.2% before lowering.
The changes came as articles touting cannabis stocks aired during the upcoming GameStop on the popular WallStreetBets forum on Reddit, tying it to the short squeeze that pushed the video game retailer’s shares to over 1,650% in January. .
“I missed the Gamestop boat, but I don’t think we’re missing this one,” wrote one user.
The forum has become a staple for traders in financial institutions since the concerted action of some of its 8 million attendees was enough to cause heavy losses in a handful of short hedge funds in January.
GameStop shares have fallen more than 85% from their closing high of $ 347.51 on January 27, capping a mad rush that illustrated the power of retail investors trading on commission-free platforms such as Robinhood to influence financial markets.
Swaggystocks, which aggregates sentiments on stocks that were discussed in the WallStreetBets forum, showed Tilray to be the most voted or vaunted stock of the bunch.
“I don’t think the history of retail bettors will go away overnight,” said Mirabaud trader Mark Taylor. “I’m just watching the price action and trying to make sense of it all.”
The changes promised by some Democrats in Congress could help give U.S. cannabis companies access to more traditional banking methods and open up the sector to new institutional investors.
However, some analysts argue that corporate valuations are becoming unjustifiable, especially for Canadian companies like Tilray, Aphria and Canopy Growth, which could gain very little from changes in the United States.
Canopy on Tuesday announced a reduction in adjusted losses in third-quarter earnings, but analysts at Stifel said these did not support its current valuation.
Another brokerage firm, Canaccord Genuity, said the enthusiasm for the US election caused “a disproportionate flow of capital” to Canadian producers.
Shares of Tilray, which is acquired by Aphria in a complicated reverse merger, have risen more than 400% since the deal was announced in December following new deals to supply its medical cannabis to the markets Europeans.
Aphria gained 243% over the same period, as companies in the sector jumped on a wave of legalization in major U.S. states and the Democratic Party’s pledge to decriminalize the factory at the federal level.
Despite those gains, about 37% of Aphria’s float was on loan to short sellers, up from 27.3% at the end of January, according to analysis firm Ortex. Short-term interest in GameStop, by comparison, soared to more than 100% of its float during the short push that pushed its shares higher.
(Reporting by Shariq Khan in Bengaluru, Thyagaraju Adinarayan and Julien Ponthus in London, and David Randall in New York; Editing by Patrick Graham, Saumyadeb Chakrabarty and Dan Grebler)
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