Cannabis Short Sellers Clean Up After Tilray's Earnings Miss

It’s been a brutal past six months for cannabis investors, with the ETF MANAGERS TR/TIERRA XP LATIN AME MJ down another 5.9% this week following a big earnings miss from Tilray Inc TLRY. Tilray carries one of the largest short positions in the cannabis group, but Tilray’s dive has dragged down its cannabis peers as well.

Cannabis Shorts Paring 2019 Losses

On Tuesday, Tilray reported a mixed second quarter and a big earnings miss. As a result, cannabis short sellers earned 269.1 million in profits on Wednesday, according to S3 Partners analyst Ihor Dusaniwsky. He said Tilray short sellers are now up $11.7 million for the month of August and are down just $681.9 million year to date.

Short sellers have aggressively piled into the cannabis space in 2019, with short interest up 95% this year to $5.5 billion.

Short sellers are paying a steep price to bet against cannabis, with the average cost to borrow at 17.7% for cannabis stocks compared to just 0.79% for the overall domestic equity market.

Tilray shares are now down 46.7% year to date, making it one of the few top cannabis stocks that has actually been profitable for short sellers this year. Tilray shorts earned $37.1 million on Wednesday and are now up $62.8 million year to date.

Short Squeeze In Play

Despite the August gains, Dusaniwsky said cannabis short sellers haven’t been cashing out and covering so far in August, with only Aurora Cannabis Inc ACB and Canopy Growth Corp CGC logging significant decreases in shares shorted this month

“With high financing costs, lack of liquidity in the stock borrow market and year-to-date losses the threat of a short squeeze hovers over many stocks in the sector,” Dusaniwsky said.

Here are the five largest cannabis short positions following Wednesday’s volatile session:

• Canopy Growth - $1.39 billion short interest.
• Aurora Cannabis - $925 million short interest.
• GW Pharmaceuticals PLC- ADR GWPH - $671 million short interest.
• Cronos Group Inc CRON - $569 million short interest.

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