Short sell­ers make $450M on pot stocks

Calgary Herald - - FRONT PAGE - KRIS­TINE OWRAM

Cannabis short sell­ers made over US$450 mil­lion on the first two days of the week, cut­ting nearly a third off their year-to-date losses, ac­cord­ing to data from fi­nan­cial an­a­lyt­ics firm S3 Part­ners.

Pot stocks fell for six con­sec­u­tive trad­ing days be­gin­ning Oct. 16, the day be­fore Canada le­gal­ized recre­ational mar­i­juana. The BI Canada Cannabis Com­pet­i­tive Peers in­dex tum­bled 21 per cent from then through Tues­day’s close, and the Hori­zons Mar­i­juana Life Sci­ences In­dex ETF, the largest pot ex­change-traded fund, lost 20 per cent to its low­est level in two months.

The stocks opened higher Wednes­day but gave up much of their early gains. Til­ray Inc. rose as much as 5.8 per cent at the open but fell 9.84 per cent to close at US$108.90 in New York. Au­rora Cannabis Inc. was down 5.58 per cent at US$7.27, on its sec­ond day on the New York Stock Ex­change. Canopy Growth Corp. was down 7.92 per cent to US$37.76 af­ter ris­ing as much as 3.5 per cent.

The re­cent week­long slide has been a boon to short sell­ers, who are shelling out huge fees to bet the stocks will fall.

The aver­age fee on out­stand­ing shorts in the cannabis sec­tor is 15.4 per cent, with Til­ray cost­ing 72 per cent to bor­row as a re­sult of high de­mand and a small pub­lic float, ac­cord­ing to Ihor Du­sani­wsky, head of re­search at S3. Pot short sell­ers are pay­ing over US$1.2 mil­lion a day to fi­nance their bor­row fees.

“If the cost to bor­row cannabis stocks be­gins to cheapen in the larger-cap names, we may see more short sell­ers en­ter this over-heated sec­tor look­ing for stock prices to ease back down to more rea­son­able value-based mul­ti­ples,” Du­sani­wsky wrote in a note pub­lished Tues­day.

RYA N REMIORZ/THE CANA­DIAN PRESS

Pot stocks fell for six straight trad­ing days be­gin­ning Oct. 16.

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