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Cannabis stocks litter the list of most expensive bearish bets

Aurora Cannabis shorts pay a combined $719,000 a day to stay bearish

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By Tomi Kilgore, MarketWatch


Everett Collection
Scene from “The Big Short”

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 /zigman2/quotes/204332491/composite MJ +0.17%  surged 8.2% Thursday. The ETF has run up 16% amid a three-day win streak since closing at a record low of $16.07 on Monday. The ETF was still down 27% over the past three months, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.0073%  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 /zigman2/quotes/210559470/composite ACB +1.15%   /zigman2/quotes/203734337/delayed CA:ACB +0.87%  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.

/zigman2/quotes/204332491/composite MJ 17.49, +0.03, +0.17%

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. /zigman2/quotes/202934861/composite AAPL +1.36%  and Tesla Inc. /zigman2/quotes/203558040/composite TSLA -0.36%  were 0.3%, while the stock with the highest borrowing fee was Revlon Inc.’s /zigman2/quotes/207032377/composite REV -2.87%  at 75.05%, according to S3 data.

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

See also : All the excuses cannabis companies are making for an ugly crop of earnings.

The other three weed stocks with the highest borrow fees were 63.05% for Tilray Inc. /zigman2/quotes/209129655/composite TLRY -1.74%  , 47.05% for Hexo Corp. /zigman2/quotes/206508254/composite HEXO +0.45%   /zigman2/quotes/200008967/delayed CA:HEXO +0.68%  and Aphria Inc.’s /zigman2/quotes/207425803/composite APHA +4.36%   /zigman2/quotes/205566616/delayed CA:APHA +4.61%  40.8%.

Another cannabis stock that made the top 20 list is Canopy Growth Corp.’s /zigman2/quotes/200603886/composite CGC -2.13%   /zigman2/quotes/202205609/delayed CA:WEED -2.05%  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.

/zigman2/quotes/204332491/composite
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$ 17.49
+0.03 +0.17%
Volume: 864,555
Dec. 13, 2019 8:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,168.80
+0.23 +0.0073%
Volume: 1.96B
Dec. 13, 2019 5:14p
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/zigman2/quotes/210559470/composite
US : U.S.: NYSE
$ 2.63
+0.03 +1.15%
Volume: 24.75M
Dec. 13, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.76 billion
Rev. per Employee
$94,401
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/zigman2/quotes/203734337/delayed
CA : Canada: Toronto
$ 3.47
+0.03 +0.87%
Volume: 9.97M
Dec. 13, 2019 4:15p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$3.65 billion
Rev. per Employee
$123,163
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 275.15
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Dec. 13, 2019 4:00p
P/E Ratio
23.21
Dividend Yield
1.12%
Market Cap
$1222.57 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 358.39
-1.29 -0.36%
Volume: 6.57M
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$64.60 billion
Rev. per Employee
$439,627
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/zigman2/quotes/207032377/composite
US : U.S.: NYSE
$ 22.34
-0.66 -2.87%
Volume: 121,064
Dec. 13, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.18 billion
Rev. per Employee
$328,782
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/zigman2/quotes/209129655/composite
US : U.S.: Nasdaq
$ 18.60
-0.33 -1.74%
Volume: 1.47M
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.87 billion
Rev. per Employee
$62,689
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/zigman2/quotes/206508254/composite
US : U.S.: NYSE
$ 2.24
+0.01 +0.45%
Volume: 4.59M
Dec. 13, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$575.71 million
Rev. per Employee
N/A
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/zigman2/quotes/200008967/delayed
CA : Canada: Toronto
$ 2.95
+0.02 +0.68%
Volume: 2.81M
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$758.18 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/207425803/composite
US : U.S.: NYSE
$ 5.50
+0.23 +4.36%
Volume: 8.69M
Dec. 13, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.38 billion
Rev. per Employee
$147,410
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/zigman2/quotes/205566616/delayed
CA : Canada: Toronto
$ 7.26
+0.32 +4.61%
Volume: 5.47M
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.83 billion
Rev. per Employee
$190,843
loading...
/zigman2/quotes/200603886/composite
US : U.S.: NYSE
$ 20.68
-0.45 -2.13%
Volume: 11.87M
Dec. 13, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$7.21 billion
Rev. per Employee
$115,039
loading...
/zigman2/quotes/202205609/delayed
CA : Canada: Toronto
$ 27.28
-0.57 -2.05%
Volume: 4.53M
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$9.51 billion
Rev. per Employee
$150,142
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Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.

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