Unless you’ve been living under a rock the past few weeks, you’ve certainly heard about the massive GameStop short squeeze that was triggered by a large investment group on Reddit called WallStreetBets
A group of Wall Street hedge funds holding large short positions in stocks like GameStop, AMC and Blackberry were completely blindsided by the power of a single Reddit group and in a scramble to cover their short positions, were forced to take staggering losses
With investors everywhere wondering where the next big squeeze play will come from, here are 4 Cannabis Stocks with all the right ingredients for a major GME style short squeeze
Reddit retail investors have been “sticking” it to hedge fund managers with large short positions in struggling companies like GameStop (NYSE: GME), AMC Entertainment (NYSE: AMC), and Blackberry (TSX: BB) (NYSE: BB) (FRA: RI1). By amassing their collective buying power, the Reddit investor group has proven they have the ability to drive up a heavily shorted stock’s share price and, as a result, set off a phenomenon known as a “Short Squeeze.”
By piling into stocks with high short interest, the Reddit group was able to force short-sellers to cover their positions by buying back the shares at rapidly rising prices, creating a snowball effect as the shorts scrambled to cover their positions in fear of even greater losses.
For example, Game Stop’s shares closed at $19.97 on Jan 12, 2021, and since the short squeeze kicked off, GME shares soared as much as 2,300%, reaching an all-time high on January 28, 2021, of $483 per share. With a 52-week trading range of $2.57 – $483, GME stock has experienced a maximum 1-year rise of +18,693.77%. Those are staggering potential returns, to say the least.
The question being asked by cannabis investors now is, can a short squeeze of this magnitude occur in the cannabis sector, and if so, what companies are likely potential targets? It appears Sundial Growers (NASDAQ: SNDL) (FRA: 14K) was already targeted after SNDL stock jumped over 100% in a matter of days.
For cannabis investors wondering, which pot stock will be next? Here are four Cannabis Stocks with all the right ingredients to benefit from the short squeeze revolution:
RWB Short Data:
- CSE: RWB short interest surged 164.57% from 282,888 shares on 31/12/20 to 748,440 on 15/1/21.
- OTC: Short interest in RWBYF grew by 100% to 146,891 shares.
- Total combined RWB short interest now sits at nearly 900,000 shares according to short report data. However, this figure doesn’t include what many traders suspect to be a multimillion share short position from duplicitous naked short sellers, the same kind who sold over 100% of GME’s shares short.
Red White & Bloom (CSE: RWB) (OTCQX: RWBYF) is still an under the radar name in the cannabis sector, but that will almost certainly change in the first half of 2021. Towards the end of 2020, RWB acquired Platinum Vape, exercised a call option to acquire Michigan-based PharmaCo and secured the rights to brand dispensaries and manufacture and sell cannabis products under the High Times brand name. Following a plethora of deal-making, the company now has a presence in Michigan, Massachusetts, Illinois, California, Oklahoma, and Arizona. RWB expects to have 25 dispensaries open by the end of Q1 2021 and holds a total of 45 retail licenses.
By comparison, Cresco Labs (CSE: CL) (OTCQX: CRLBF) has 36 stores open and has 13 times the market cap of Red White and Bloom ($4.6 billion vs. $364 million). As Red White and Bloom continues its rapid expansion, expect RWB’s revenue and stock price to receive a significant boost.
CURA Short Data:
- CSE: Short interest in Curaleaf has grown 182.04% from 2,263,739 shares short on 1/1/21 to 6,384,629 18/1/21. Or 21.3% of total CURA shares traded. The total CURA short position is valued at $115.25 million.
- OTC: Short interest declined 13.8% to 649,240 shares.
Curaleaf (CSE: CURA) (OTCQX: CURLF) is the world’s largest cannabis company by revenue. It’s had an amazing run since the stock market bottom in March of 2020, but Curaleaf’s stock has pulled back significantly from its high of $16.69 (-17% as of this writing). Curaleaf also has the highest percentage of shares short of any of the U.S MSOs. Any significant move upward on the shares could cause shorts in bulk to cover, propelling the stock higher. What are some of the potential Curaleaf stock catalysts?
First, Curaleaf has a leadership position in the states most likely to legalize adult recreational use in 2021; New York, Pennsylvania, and Connecticut. Thanks to New Jersey voters approving adult use in last November’s election, nearby state politicians appear to be in a race to legalize adult-use cannabis or risk losing the tax revenue to New Jersey.
Second, with Democrats taking the White House, Senate and House of Representatives in November, legislation to deregulate and decriminalize cannabis at the federal level could come fast and furious. The big payoff will be Curaleaf being uplisted to the NASDAQ or New York Stock Exchange, giving large institutional investors and retailer traders on Robinhood access to Curaleaf shares.
Finally, Curaleaf will likely have outstanding fourth-quarter revenue and announce M&A and new organic store openings regularly – Curaleaf is likely to be the first U.S. cannabis company to open its 100th dispensary.
TRUL Short Data:
- CSE: Short interest in Trulieve has grown 112.61% from 649,715 shares short on 1/1/21 to 1,381,340 on 18/1/21, or 20.48% of total TRUL shares traded. The Trulieve short position is valued at $70.4 million.
- OTC: Short interest grew by 25.5% to a current TCNNF short position of 230,085 shares.
Trulieve (CSE: TRUL) (OTCQX: TCNNF) is the second most shorted MSO stock on the CSE behind Curaleaf. What are some of the potential catalysts that could move Trulieve’s stock?
First, Trulieve is the most profitable cannabis company on the planet sustaining 11 straight quarters of consecutive growth and profitability. The company’s balance sheet is second-to-none in the cannabis industry, with industry-leading EBITDA margins at 50%. With a 50% market share, Trulieve absolutely dominates Flordia, arguably the best cannabis state in America behind California. Expect Trulieve’s shares to move higher as we approach Q4 2020 earnings.
Second, Trulieve recently entered Pennsylvania and already has a Connecticut presence, two states likely to legalize adult-use in 2021. A push the legalize adult-use in Flordia in 2022 will likely succeed. Not only is Florida the third-largest U.S state by population, but over 130 million people also visit the state each year, and Truleive will capture 50% of the recreation use.
Finally, just like Curaleaf, Trulieve will benefit from federal legislation to deregulate and decriminalize cannabis leading to even better profitability and uplisting to a major U.S. stock exchange.
TLRY Short Data:
- NASDAQ: Short interest in Tilray has doubled since September 2020, from 17,108,881 shares to 34,365,556. Compared to 31/1/20, TLRY short interest is up 23.93%.
While Curleaf is the largest cannabis company right now, the upcoming merger between Tilray (NASDAQ: TLRY) (FRA: 2HQ) and Aphria (TSX: APHA) (NYSE: APHA) (FRA: 10E) will make the combined company the world’s largest. Should the deal get finalized, institutional investors will continue to add shares, moving the stock higher. A combined Tilray/Aphria should see over $100 million in savings, increasing the likelihood of solid earnings reports. While short interest has doubled in the past 5 months, expect that to reverse course fast once the merger is complete.
This U.S. Cannabis Stock Appears to Be Way Undervalued and May Actually Benefit From a Second Wave of the Pandemic
Red White & Bloom is a paid client of The Cannabis Investor. The Cannabis Investor holds a position in RWB.
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