The marijuana stock market is certainly not to be ignored, especially in Canada as 2018 promises to bring quite the revolutionary boom to the marijuana stocks game, as the country is making major strides in legalization of marijuana.
Additionally, marijuana stocks are difficult to short as brokerages of top Canadian banks don’t trade the stocks while smaller firms charge prohibitive interest rates to lend them.
“It’s harder to find that borrow, and that borrow is very expensive,” said Matt Bottomley, an analyst at Canaccord Genuity Group (h/t Press Herald). “It’s a hard industry to short.”
Canada’s “big four” producers are reportedly worth more than C$10 billion ($7.8 billion) after Canopy Growth Corp, which more than doubled this year, Aurora Cannabis Inc. which more than tripled this year, Aphria who gained 180% and MedReleaf Corp, which debuted in June and has grown more than 60 percent. These numbers make it hard to discredit, discount or ignore the potential of marijuana stocks in 2018.
With all the changes coming in a critically important 2018, Canada, along with it’s provinces, are still working out the details of how they will regulate, tax and distribute the products. A number of publicly traded companies have yet to make a sale.
In terms of cost, the annual cost to borrow Aurora shares for a short position is 26% less than 0.5 percent for most stocks in the S&P 500 index, including big names such as Apple and the online shopping giant Amazon.
“The higher the fee means there’s almost no stock left to short,” Dusaniwsky said. “No one is making money shorting these stocks.”
Short sellers have lost $112 million in Aurora and $33 million in Canopy Growth, Dusaniwsky explained.
“If you don’t have short sellers in the market, you have no ability for anyone to bet against a company plus you have no ability to hedge,” Chris Damas, editor of the BCMI Cannabis Report, said in the article interview. “It directly feeds into the massively euphoric bull market we’ve had in these stocks.”
This could lead to issues for the rise and stability of the marijuana stocks, in what BCI has categorized as “the runaway train of Canadian cannabis.”