'Sizable Amounts Of Short Covering' In Canopy Growth

Canopy Growth Corp CGC, one of the hottest stocks in the market so far in 2019, got yet another boost Thursday when the company announced celebrity Martha Stewart would be joining the company to advise on the development of marijuana products for humans and pets.

In addition to the good fundamental news, financial technology and analytics firm S3 Partners analyst Ihor Dusaniwsky said Thursday he is seeing signs of a potential short squeeze ahead that could propel Canopy stock even higher.

It’s A Good Thing

U.S.-listed cannabis stocks have extremely large outstanding short positions, and those positions have been very costly so far this year. Canopy has been one of the top performers among cannabis stocks, gaining 78.6 percent year-to-date. S3 data indicates there's currently a $1.33 billion short position in Canopy, about 12.4 percent of the stock’s float.

Following the Martha Stewart news, Canopy shares climbed as much as 4.5 percent, driving paper losses on shorts to as high as $66 million in the day. Year to date, Canopy Growth short sellers are collectively down roughly $731 million, according to Dusaniwsky.

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Short Squeeze Ahead?

As satisfying as it is for cannabis bulls to see short sellers getting smoked, it’s even better news to see them jumping ship. Dusaniwsky said he saw “a sizable amount of short covering” in Canopy on Thursday.

“With nearly three quarters of a billion dollars in mark‐to‐market losses we can expect a squeeze in the stock if the Martha Stewart effect takes hold and moves Canopy Growth stock price even higher,” Dusaniwsky said.

Canopy isn’t the only cannabis stock that's burning short sellers in 2019. In addition to the $731 million in year-to-date losses for Canopy short sellers, Aurora Cannabis Inc ACB short sellers are down $334 million and Cronos Group Inc CRON short sellers are down $296 million.

Canopy Growth traded at $47.25 per share at time of publication.

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