Home Business Cannabis stocks litter the list of most expensive bearish bets

Cannabis stocks litter the list of most expensive bearish bets


Bearish investors who want to short marijuana stocks remain plentiful, despite the big three-day bounce in the cannabis sector, as the list of stocks with the highest borrowing costs for a short sale includes many in the marijuana business.

A bearish investor first needs to borrow a stock, then sell the stock with the expectation it will be repurchased at a lower price for a profit before the borrowed stock is returned.

But a short seller incurs the cost of a “borrow fee” which is the interest charged to borrow a stock before it is shorted.

Of the 10 stocks with the highest borrowing fees, four are U.S.-listed pot stocks, according to data provided by Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Then in addition there is the risk of a loss in principle by having to buy the shorted stock back at a higher price.

For example, the ETFMG Alternative Harvest exchange-traded fund

MJ,+8.15%

 surged 7.6% in afternoon trading Thursday, and has run up 15% amid a three-day win streak, since closing at a record low of $16.07 on Monday. The ETF was still down 29% over the past three months, while the S&P 500 index

SPX,-0.16%

 was up 6.2%. See Cannabis Watch.

Don’t miss: Short sellers are not evil, but they are misunderstood.

The fee to borrow Aurora Cannabis Inc.’s stock

ACB,+18.18%

ACB,+18.29%

 was the third highest overall, and the highest of the four cannabis stocks, at 66.55% as of Wednesday. That means it cost an annualized $1.75, or 1.3 cents a day, to short one Aurora stock at Wednesday’s closing price of $2.64. So a year from now, the shorted stock would have to be bought back at 89 cents just to break even.

Also read: Cannabis stocks soar across the board as historic House vote lures investors back to battered sector.

Aurora’s borrowing fee compares with fees of 0.3% to 0.5% for “general collateral” stocks, or those of large-capitalization companies with enough shares outstanding that finding enough shares to borrow would never a problem.

Borrowing fees for shares of Apple Inc.

AAPL,-0.45%

 and Tesla Inc.

TSLA,+0.74%

 were 0.3%, while the stock with the highest borrowing fee was Revlon Inc.’s

REV,-4.61%

 at 75.05%, according to S3 data.

The high cost to short Aurora’s stock comes after it plunged 17.0% last Friday, and 16.5% on Monday, after the company reported disappointing quarterly results and said it planned to cut spending.

The other three weed stocks with the highest borrow fees were 63.05% for Tilray Inc.

TLRY,+7.22%

 , 47.05% for Hexo Corp.

HEXO,+33.68%

HEXO,+33.99%

 and Aphria Inc.’s

APHA,+9.51%

APHA,+10.02%

 40.8%.

Another cannabis stock that made the top 20 list is Canopy Growth Corp.’s

CGC,+15.02%

WEED,+15.07%

 at 25.8%.

The willingness to pay high fees to hold short positions in pot stocks comes after the sector has been beaten up for months, amid a series of scandals, regulatory uncertainty and disappointing financial results.

See related: Cannabis companies are having a horrible summer as scandals mount and stocks slide.

Aurora’s stock tops another dubious list of U.S.-traded stocks that have a minimum short interest value of $50 million, with the largest daily stock borrowing expense. The value of Aurora stock shorted was $388.9 million as of Wednesday, implying a combined total borrow cost of $718,975 per day, S3 data showed.

Others high on the list were Canopy at $455,656 a day, Tilray at $290,243 a day and Aphria at $165,384 a day.

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