Cannabis Stock Short Sellers Have $4.3B In Losses So Far In 2021

After a big finish to 2020 for cannabis investors, the ETF MANAGERS TR/TIERRA XP LATIN AME MJ has rallied 86% so far in 2021, propelled in large part by bullish U.S. election results and optimism surrounding federal legalization.

In the past week, a short squeeze sent shares of Tilray Inc TLRY nearly 150% higher before a sharp sell-off on Thursday.

The Numbers: Short sellers have been trimming their positions in cannabis stocks in 2021, with cannabis stock short interest down about $1.54 billion to $4.86 billion year-to-date. Tilray has been a major exception to that trend, with short interest up more than $1 billion since its announced merger with Aphria Inc APHA, according to S3 Partners analyst Ihor Dusaniwsky.

The only good news for cannabis short sellers in 2021 has been that stock borrow fees have dropped from an average of 30.3% on Jan. 1 to just 4.2% today.

As of this week, Neptune Wellness Solutions Inc NEPT is the most expensive cannabis stock to short with a 32.5% borrow fee.

Year-to-date, Dusaniwsky said cannabis short sellers are zero for 20, taking 20 losses on the 20 most heavily shorted cannabis stocks.

“With short sellers already bloodied, full blown short squeezes in many of these stocks should not be a surprise and long shareholders will have a tailwind of buy-to-covers helping drive stock prices even higher,” Dusaniwsky said Wednesday.

Prior to Thursday's big cannabis stock sell-off, short sellers have mounted more than $4.3 billion in mark-to-market losses in these 20 stock alone so far in 2021.

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More Squeeze Coming? Dusaniwsky said the cannabis sector short squeeze in recent weeks is an excellent example of how a short does not need to be crowded for a short squeeze to occur. Losses alone can be enough to drive short sellers out of their positions and create a positive feedback loop. The extra retail buying pressure from the WallStreetBets Reddit community that sent GameStop Corp. GME shares soaring in recent weeks has only added fuel to the fire.

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

• Canopy Growth Corp CGC: $1.49 billion in short interest.
• Tilray: $1.33 billion in short interest.
• Aphria: $402.6 million in short interest.
• GW Pharmaceuticals PLC- ADR GWPH: $401 million in short interest.
• Aurora Cannabis ACB: $385.7 million in short interest.

Benzinga’s Take: Cannabis stocks will likely continue to be volatile in the near term while the industry matures. Long-term investors should continue to monitor the progress of U.S. state-by-state and federal legalization efforts given the U.S. market will likely be the biggest opportunity for the industry in coming years.