There are a fair number of duds in the cannabis sector at the moment, so it’s not surprising that many short sellers have gravitated to the industry.
The most famous example of such an instance was back in late 2018 when Aphria Inc (NYSE: APHA) came under fire from an investigative report from short-sellers. However, it appears that another Canadian cannabis company has been marked by short sellers around the world which have smelt blood in the financial waters so to speak.
Cannabis One (CSE CBIS)(OTC: CAAOF) is the company in question, with new information revealed recently that indicates almost 45 percent of all outstanding shares are being shorted at the moment.
The company has already lost over 80 percent of its value in the past couple of months as a number of hedge funds and institutions target the small company for a variety of reasons.
Jeff Mascio, CEO of Cannabis One, goes on to claim that the reason stock prices have been plummeting is more to the fact that the Canadian capital market environment is particularly lax in his eyes.
He went on to say that the main reason Cannabis One has fallen is because an investment bank that was in talks with the company tipped off investors of a potential $20 million financing round.
“When I found out what was going on, I walked away from that financing. Since (then), we’ve said, we’re going to finance the company differently — but we’ve had to put our capital expenditures and acquisitions on hold,” said Mascio according to MarketWatch. Another anonymous banker who was consulted for the story went on to add his own opinion on how the Canadian capital markets worked. Specifically, he goes on to say that what’s been happening to a number of small cannabis companies has been going on for a while in the small-cap mining sector of Canada. “You’d have a mining company that would want to raise C$20 million, for example, with a special warrant transaction and talk with a banker at a small firm,” the former banker said. “The banker would then selectively talk with individual accounts, usually extremely aggressive money managers and investors. If they owned the stock, they would start selling it and if they didn’t they would short it.”
Cannabis stocks overall have seen significant setbacks over the past three months, with the sector losing much of its earlier enthusiasm that propelled it forward in the first quarter of 2019. Shares of Cannabis One Holdings plummeted from almost C$5 in late April to around C$0.86, an 82 percent decline.
Since going public in February, Cannabis One saw itself rise in value, almost doubled in a couple of months before losing almost all of their market cap to short sellers.
Unlike the case of Aphria, however, where there was still a strong foundation in terms of their Canadian assets and output, Cannabis One doesn’t have nearly of a strong asset base to help its stock see a comeback in the coming months. Time will tell whether or not short sellers will end up sinking the company for good.