Cannabis Stock Short Sellers Have $807M In Profits So Far In 2022

After a horrible 2021 for cannabis investors, the AdvisorShares Pure US Cannabis ETF MSOS is down another 55.1% in 2022.

President Joe Biden and a Democrat-controlled Congress have made little progress on U.S. federal cannabis reform.

The Numbers: Short sellers have been trimming their positions in cannabis stocks in 2022, with cannabis stock short interest down about $1.04 billion to around $632 million year-to-date. Cresco Labs Inc CRLBF has been a major exception to that trend, with short interest up more than $1.8 million in 2022, according to S3 Partners analyst Ihor Dusaniwsky. Dusaniwsky says cannabis group short selling is highly concentrated in a handful of stocks, with the 20 most shorted cannabis stocks making up 97% of the total short interest.

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Among the top 20 most shorted cannabis stocks, Canopy Growth Corp CGC has the highest short percent of float at 20.8%. Canopy short sellers have also made a $291.4-million profit so far in 2022, making it the most profitable cannabis short this year.

Year-to-date, Dusaniwsky said cannabis short sellers are 20 for 20, earning profits on every single one of the 20 most heavily shorted cannabis stocks.

“Overall, the cannabis sector is not a favorite short, even though the trades have been profitable in 2022,” Dusaniwsky said Wednesday.

Short sellers have generated more than $807 million in mark-to-market profits in these 20 stocks alone so far in 2022.

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Short Squeeze Coming? Cannabis investors are likely hoping some good news on the regulation front could trigger a significant short squeeze in the most shorted cannabis stocks.

Cannabis stocks experienced this type of squeeze in early 2021 when they briefly became favorites of Reddit's WallStreetBets community. Unfortunately, Reddit-fueled short squeezes didn't last long, and short sellers that took advantage of the opportunity have lined their pockets ever since.

The following are the five largest cannabis short positions as of Wednesday:

• Tilray Inc TLRY: $244.4 million in short interest.
• Canopy Growth: $113.6 million in short interest.
• Sundial Growers Inc SNDL: $66.2 million in short interest.
• Cronos Group Inc CRON: $57.8 million in short interest.
• Aurora Cannabis Inc ACB: $385.7 million in short interest.

Benzinga’s Take: If Democrats are going to do something meaningful to legalize cannabis in the U.S., their two-year window of a Democrat in the White House and Democratic majorities in both houses of Congress is closing quickly. Republicans have a 63% chance of gaining the majority of both the House and the Senate in November, according to PredictIt.