Cannabis Corner: Make the Short Sellers Cry

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

When I see some of the most dynamic growth stocks in the world drop 40 percent in a four-month period, I know Wall Street’s negativity is overdone. That’s where Big Cannabis is today.

After all, stocks like Canopy Growth Corp. (NYSE:CGC) and Aurora Cannabis Inc. (NYSE:ACB) have been cut in half, but their underlying sales curves haven’t declined anywhere near that extent.

At the end of May, I thought CGC was looking for 200 percent revenue growth in the coming year. I admit now that I was a little too aggressive, even a tad naive.

Now it looks like this company will only boost its top line 170 percent in the next 12 months. I stand corrected. The numbers are still outrageous… they’re just a little less spectacular than we thought four months ago.

And that slightly more realistic outlook deserves a slightly less euphoric stock price. Four months ago, CGC at $54 commanded a multiple of 24X anticipated 2020 sales, which is an extreme number to fit an extreme stock.

Down here at $30, sales targets have come down 20% but the stock is down 45 percent for a multiple of 16X forward revenue. By historical standards, CGC is actually a bargain.

ACB and other Big Cannabis stocks tell a similar tale. And I think the relative “value” here makes people who bet against these companies on the downswing nervous.

Short interest on ACB has climbed to 14 percent of the entire stock. Those investors have committed to buy 133 million shares simply to cover their positions and get out.

At normal volume, it’s going to take weeks before they can get those shares. During that period, they’re vulnerable, even desperate.

CGC is even more oversold. Those short sellers need to buy back 19 percent of the company just to cover their positions. Again, that process will take weeks.

I suspect we’re going to make their lives a whole lot harder in my Turbo Trader Marijuana Millionaire Portfolio. If this is the bounce, we’re ready to boost our existing win rate and make more money.

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