Cannabis stock short sellers have lost $490 million year-to-date and $626 million since the start of August according to S3 Partners. Betting against the booming marijuana sector has become a very expensive occupation as of late. Short interest in the cannabis sector rose by $458 million (44%) to $1.5 billion since the end of Q2.
Aside from losing money when the share price rises, short sellers also having to pay an increasing amount of fees when they bet against marijuana stocks. Investors short a stock by borrowing shares and selling them, in anticipation that they can buy them back later at a lower price. Those lending the shares charge a fee, which tends to go up as the stock becomes harder to get ahold of.
S3 Partners reported that short sellers are paying over $2.4 million per day in financing costs as the average fees to borrow stocks in the sector hit 21.8%. The report also added that shorting the two main cannabis ETFs isn’t much cheaper, costing investors on average a fee of 20.8%.
Higher average fees were blamed mostly on the fact that stock borrows for some of the sector’s most shorted shares have been more difficult to locate. For example, shorting Tilray’s (NASDAQ: TLRY) stock now reportedly costs a fee of anywhere between 450% to 600%. The Green Organic Dutchman Holdings (TSX: TGOD) and Cronos Group (TSX: CRON) were also classified as expensive stocks to short, with fees of roughly 50%.
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