Cannabis Corner: How a Short Squeeze Feels

Hilary Kramer

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

It has been an encouraging week for cannabis bulls, with the core group of stocks I track rallying a staggering 21 percent since the last issue of Trading Desk.

Every single cannabis producer and distributor in that group joined the party. The weakest, Aphria Inc. (NYSE:APHA), reported a slight earnings miss and still surged 6 percent.

When the disappointments still run rings around the S&P 500, investors aren’t really looking at the underlying companies as separate entities. This is once again a pure thematic trade where a rising “green tide” theoretically will lift all boats.

That’s not really what’s going to happen. It is not healthy to punish great companies for the mistakes of their weaker competitors, which is what happened when that sentimental tide went out last summer.

And after watching unnaturally tight correlations between these stocks finally break, this feels more like a relapse than a reason to cheer. I don’t think this is a real rebound at all.

Instead, this is probably just the short sellers covering their positions and taking profits. As depressed as these stocks are, even that brief respite can unleash a whole lot of upside without changing the long-term trend.

We only need to look at Tilray Inc. (NASDAQ:TLRY) for a demonstration of how this works. That stock went from one of the hottest initial public offerings (IPOs) of 2018 to practically radioactive status. As I write this, short sellers now have committed to buy back 48 percent of the float.

In other words, they owe the market $150 million in TLRY stock before they can close their positions. Here in the new year, a few are cashing out. Nobody was willing to sell at $15 so the short sellers needed to raise the offer beyond $20, a stunning 35 percent above last week’s level.

Exclusive  SCORE BIG PROFITS WITH GOL

The shorts can afford to look generous. Some of them opened bets against this company back in June when TLRY was a $45 stock. There’s plenty of room for this bounce to continue.

Naturally, the other Big Cannabis names were also heavily shorted, although not to the same extreme extent. They’re rallying too.

What I find encouraging is not the size of the bounce but the amount of shares the shorts still owe. A lot of TLRY shareholders evidently aren’t content to exit at $20.

They’re hanging on for better days ahead. That’s what I love about the market. Conviction counts. If the bulls are right, they’ll force the bears to surrender.

For now, we enjoy the relief and look to those better days.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

Featured Image Source: Truist Corporate Website.

Truist Financial Corporation – the new business entity formed by a merger of equals between the BB&T Corporation and SunTrust Banks Inc. – will deliver to the public its first post-merger earnings report at the end of January.

While the two merged business entities certainly suffered significant share price losses in the aftermath of the 2008 financial crisis, both compani

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE