Investors spend hundreds of millions of dollars to reduce cannabis stocks, despite huge losses

Investors are injecting more money into short stocks, although this has resulted in losses estimated to date of $ 892 million, according to a US company specializing in short selling research.

Ihor Dusaniwsky, director of predictive analytics at S3 Partners, says his data shows that investors have spent US $ 1.4 billion for the reduction of cannabis stocks in the US and Canada since the middle of the year. year, but that they have trouble finding winning names.

"There are no cannabis shorts that yield more than $ 20 million but many lose more than $ 100 million," said Dusaniwsky.

Investors still continue to test the sector, said Dusaniwusky, saying the sector "was flying too close to the sun" and was facing a reversal.

Until this year, the shares of Canopy Growth Corp. increased by more than 73%, while Tilray Inc. shares increased by 541%, the latter just since its IPO in July.

According to S3 data, which measures the short sales of 141 cannabis titles in the United States and Canada, Canopy, Aurora Cannabis Inc. and Tilray are the top three outsourced companies when they combine their short-term interest for dual listing shares. These are also stocks that have lost over $ 100 million this year in short sellers.

It is not just the overall positive performance of the cannabis sector that has been a problem for short sellers.

Currently, according to Dusaniwsky, the main problem with short films is that it has been difficult for brokers to locate the shares to be borrowed and that, as a result, the cost of this operation has increased.

Cannabis stocks are primarily owned by retail investors, most of whom do not have the margin accounts required to borrow and lend shares, said Dusaniwsky. High demand and weak supply led to borrowing costs of between 30 and 40% and beyond, in some cases.

Investors who are looking for short shares on Tilray are currently facing a 38% borrowing rate, according to S3. With a total short position rising to around 415 million USD on Friday, this means that shorts pay in total around 388,000 USD a day to short sell the company.

So far this year, Tilray's shorting has been a costly trade, with total losses incurred by short sellers reaching 340 million US dollars, according to S3.

You must be right and be right pretty quickly otherwise the price of the stock loan will nibble your (profits)

predictive analyst Ihor Dusaniwsky, S3 Partners

Those interested in the Cronos Group will incur a 42% loan fee, while the highest borrowing costs – 50% – belong to the shares of Mississauga's The Green Organic Dutchman Holdings Ltd. , in Ontario.

Because of the cost of borrowing, said Dusaniwsky, most investors can not risk selling their stocks of cannabis in the short term.

"You must be right and you must be right pretty quickly, otherwise the price of the stock will weigh on your (profits)," he said.

While they are interested in short selling individual companies, investors have avoided resorting to ETFs like the Horizons Marijuana Life Sciences ETF. Dusaniwsky said this may suggest investors are still confident that the sector as a whole will continue to perform well, but that some companies are not doing it.

Long-term investors will continue to attract long-term investors in hopes that a US market will solidify, said Dusaniwsky, which could create more volatility – and more short sellers.