Daily Management Review

Cannabis Sector In US Rises To New High As It Gains Traction Through Reddit


Cannabis Sector In US Rises To New High As It Gains Traction Through Reddit
The recent trading frenzy at the American stock exchanges in Reddit favorites such as GameStop could be shifting towards other stocks as indicated by the stocks of cannabis companies reaching fresh highs because of a strong retail investor interest.  
There was a 50 per cent jump in the stocks of Tilray while a more than 6 per cent rise in the shares of Canopy Growth Corp and a 20 per cent rise in stocks of Aurora Cannabis Inc was reported earlier this week.
There was also a gain of almost 15 per cent in the value of the ETFMG cannabis stocks exchange traded fund whose value has more than doubled since the United States presidential elections in November. In comparison, the broader S&P 500 index has remained flat in that period.
This uptick in cannabis stocks comes following tweets from experts and analysts about the cannabis stocks being the next GameStop was spread across Reditt’s popular forum called WallStreetBets. According to experts, cannabis stocks have soared because of hopes that there will be changes in federal laws under President Joe Biden.
There was a "short squeeze" rally in the stocks of the video game retailer by retail investors which drove the stocks by more than 1,650 per cent in January, also sparking rise in other "meme stocks". Most of those gains were however eliminated in a reversal this month.
As of Wednesday, the short interest in Tilray was at about 37 per cent. Short interest is a measure of the price of a stock and the number of shares borrowed by investors who bet that the price of the stocks would fall. According to financial analytics firm Ortex, that number at the end of January was at 27 per cent.
Ortex data showed that at the same time, the approximate short interest in GameStop had dropped down to 39 per cent of freefloat versus exchange estimates of 46 per cent at the end of January.
Since joint action by some of its 8 million participants showed it to be enough to drive deep losses in a handful of short-selling hedge funds in January, WallStreetBets has become a must-watch for traders at financial institutions.
"I don't think the retail punter story goes away overnight," said Mirabaud sales trader Mark Taylor. "I am really only watching the price action and trying to make sense of it all."
American companies in the cannabis sphere will be allowed access to more traditional funding sources such as banks while also opening up the segment for new and institutional investors because of promised changes to federal laws about cannabis business by some Democrats in Congress.
But there are arguments presented by some analysts about the valuations of some of the cannabis companies being unjust. Of particular focus in this regards has been Canadian companies such as Tilray, Aphria and Canopy Growth as these companies stand to gain very little from legal changes for this sector in the United States