(Bloomberg) — A boom in the stocks of cannabis companies has troubled short sellers, who have lost more than $105 million this year. But this did not stop traders from competing with the sector.
Most read from Bloomberg
Over the past 30 days, short sellers have plowed $91 million into new positions, betting that pot stocks will decline despite paper losses, according to a report by S3 Partners LLC. Cannabis companies are hoping that marijuana reclassification and the SAFE Banking Act, legislation that would make financial services more accessible to the industry, will move forward in the US Congress.
This month, the MJ PurePlay 100 Index, the US and Canadian cannabis company’s stock, has gained 19%.
“If the rally falters too much or these measures take longer than expected to be implemented, we will see future share price weakness and an increase in short selling in the sector,” wrote Ijor Dusanievsky, managing director at S3 Forecast Analytics. In the report.
Read More: Pot Stocks Have Best Week of 2020 as US Mulls Drug Shift
Despite the recent surge, pot stocks are down 91% from their peak in October 2018. The industry has been buoyed by positive industrial developments.
In August, the U.S. Drug Enforcement Administration said it would review the classification of cannabis following comments from the assistant secretary of health, and it was reported that the SAFE Act could get a sign-up session in a Senate committee next week.
Read more: Pot stocks rise on hope ahead of SAFE Banking Act
To be sure, there are still big changes in the sector that short sellers seem to be counting on. The SAFE Act has previously failed to get a vote in Congress. And even if cannabis is reclassified by the DEA, it will still be illegal at the federal level.
According to S3 data, short sellers concentrated most of their positions in 10 cannabis companies, which track a basket of 126 U.S. and Canadian stocks. In the last 30 days from Tilray Brands Inc.
(Updates stock movements near the market.)
Most read from Bloomberg Businessweek.
©2023 Bloomberg LP