Pot Stock Rally Burns Short Sellers for $105 Million in Losses
The cannabis industry has been on a tear in 2023, and short sellers have been feeling the heat.
The Cannabis Industry is Booming
The cannabis industry has been on a rapid rise in 2023, with the Horizons Marijuana Life Sciences Index ETF, a benchmark for the sector, up more than 200% since the start of the year. The surge has been driven by a wave of new investors, as well as the increasing acceptance of cannabis as a legitimate industry.
The rally has been so strong that it has burned short sellers, who bet against the sector, for more than $105 million in losses. According to data from financial analytics firm S3 Partners, short sellers have been forced to cover their positions, resulting in a net outflow of $105 million from the sector.
Short Sellers Forced to Cover Positions
Short sellers have been forced to cover their positions as the cannabis sector continues to rally. Short sellers borrow shares of a stock and then sell them, hoping to buy them back at a lower price and pocket the difference. But when the stock rallies, they are forced to buy back the shares at a higher price, resulting in a loss.
The cannabis sector has been particularly punishing for short sellers. The Horizons Marijuana Life Sciences Index ETF has gained more than 200% since the start of the year, and many of the stocks in the sector have seen even bigger gains.
Short Sellers Feeling the Pain
Short sellers have been feeling the pain of the cannabis sector rally. According to S3 Partners, short sellers have lost more than $105 million in the sector since the start of the year.
The biggest loser has been Tilray Inc., a Canadian cannabis company. Short sellers have lost more than $50 million on Tilray since the start of the year. Other big losers include Canopy Growth Corp., which has seen short sellers lose more than $20 million, and Aurora Cannabis Inc., which has seen short sellers lose more than $15 million.
Cannabis Stocks Remain Volatile
Despite the losses, short sellers remain active in the cannabis sector. According to S3 Partners, short interest in the sector remains high, with more than $1.2 billion in short positions.
The cannabis sector remains volatile, and short sellers may yet be proven right. But for now, the sector is on a tear, and short sellers are feeling the pain.