Marijuana short sellers make over $450M in two days

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Analysts predict more short sellers will be tempted to enter the marijuana sector

Marijuana short sellers are still in the red, but they shaved nearly one-third off their losses this week cannabis stocks took a tumble. From the start of trading on Monday through the close on Tuesday, short sellers made more than $450 million, according to the financial analytics group S3 Partners.

Cannabis stocks began their descent the day before recreational sales became legal in Canada on October 17. From October 16 through October 23, the BI Canada Cannabis Competitive Peers index dropped 21 percent. Horizons Marijuana Life Sciences, the largest exchange-traded fund in the sector, also dropped 20 percent.

Wednesday started off slightly better for the sector, but several leading stocks were still down by close. Aurora Cannabis gained 6.9 percent during its second morning on the New York Stock Exchange only to close down 0.5 percent. Canopy Growth initially rose 3.5 percent but fell down again 2 percent.

Short sellers have fared the best from the week-long slide. Outstanding shorts in the sector are charged at an average fee of 15.4 percent. On the high end of the spectrum, Tilray cost up to 72 percent to borrow due to the high demand and small public float.

According to Ihor Dusaniwsky, research head for S3, the sector is ripe for more short sellers to enter. He predicts short sellers will become turned onto the marijuana sector if the cost to borrow continues to cheapen for stocks with larger caps such as Tilray and Cronos.

Meanwhile, Canada is quickly running out of product to sell. Cowen analyst Vivien Azer reports that around 46 percent of producers have sold out of product across five provinces.