Cannabis Short Sellers Made A Killing In 2019

For the most part, 2019 was an extremely difficult year for short sellers. However, cannabis stocks were one of the few places where short sellers made a killing last year.

Even after a $132 million loss in the month of December, cannabis stock short sellers still managed $993 million in total profits in 2019, according to S3 Partners.

Last week, S3 analyst Ihor Dusaniwsky said that even after a huge year in 2019, there is still more than $4 billion in cannabis stock short interest. In fact, short sellers leaned into the group in 2019, adding $898 million to their net positions, Dusaniwsky said.

While the total number of cannabis shares shorted dropped by 5.3 million in December, the dollar value of the cannabis short interest grew by $23 million in the month thanks to a strong performance by cannabis stocks to close out the year.

Short Sellers Piling In

Dusaniwsky said short sellers added to their positions in virtually all the top cannabis stocks last year despite an extremely high 30.5% average stock borrow fee among the 20 most heavily shorted stocks in the group. These 20 stocks cost short sellers an aggregate of $2.48 million per day just to maintain their positions.

Looking ahead to 2020, Dusaniwsky said a rise in the number of institutional investors that are allowed to buy cannabis stocks could apply pressure to cannabis shorts.

“With the size of long buying usually dwarfing the amount of short selling in a stock, there is a good chance there will be short squeezes in several names, pushing stock prices even higher,” Dusaniwsky said.

Here are the five most profitable cannabis shorts of 2019, according to S3:

• Aurora Cannabis Inc ACB, +$264.8 million.
• Cronos Group Inc CRON, +$217.1 million.
• Tilray Inc TLRY, +$174.3 million.
• Canopy Growth Corp CGC, +$134.5 million.
• CannTrust Holdings Inc CTST, +$81.7 million.

Benzinga’s Take

Given the volatility and unpredictability in the cannabis group and the fact that it's so expensive just to maintain a position, shorting cannabis stocks in 2020 is very risky business. Short sellers sitting on large cannabis gains from 2019 should consider taking profits on at least a portion of their positions in 2020.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

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