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Cannabis stocks light up Reddit as sector surges to new highs

TechnologyFeb 10, 2021 12:25PM ET
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2/2 © Reuters. FILE PHOTO: Cannabis plants grow inside the Tilray factory in Cantanhede 2/2

By Shariq Khan and David Randall

(Reuters) - Interest from retail investors appeared to lift cannabis stocks broadly higher on Wednesday, signaling that the recent trading frenzy behind Reddit favorites such as GameStop (NYSE:GME) is shifting to other companies.

Shares of Tilray (NASDAQ:TLRY) jumped 40% in morning trading, while shares of Canopy Growth (NASDAQ:CGC) Corp and Aurora Cannabis (NYSE:ACB) Inc both rallied more than 12%. The ETFMG cannabis stocks exchange-traded fund, which has more than doubled in value since November's U.S. presidential elections, gained nearly 10%, while the broad S&P 500 index edged just 0.2% higher before turning lower.

The moves came as posts touting cannabis stocks as the next GameStop spread throughout the popular WallStreetBets forum on Reddit, linking it with the short squeeze that pushed shares of the video game retailer up more than 1,650% in January.

"I missed the Gamestop boat, but I don't think we're gunna miss this one," one user wrote https://www.reddit.com/r/wallstreetbets/comments/lgrc39/daily_discussion_thread_for_february_10_2021.

The forum has become a must-watch for traders at financial institutions since concerted action by some of its 8 million participants proved enough to force deep losses in a handful of short-selling hedge funds in January.

Shares of GameStop have fallen more than 85% since their closing peak of $347.51 on Jan. 27, capping a wild ride that illustrated the power of retail investors trading on commission-free platforms such as Robinhood to influence financial markets.

Swaggystocks, which aggregates sentiment on shares talked about in the WallStreetBets forum, showed Tilray was the most upvoted, or highly touted, stock in the group.

"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."

Changes promised by some Democrats in Congress could help give U.S. cannabis companies access to more traditional methods of banking and open the sector to new, institutional investors.

However, some analysts argue that the valuations of the companies are becoming unjustifiable, especially for Canadian companies like Tilray, Aphria (NASDAQ:APHA) and Canopy Growth, which may gain very little from U.S. changes.

Canopy reported a reduction in adjusted losses in third-quarter results on Tuesday, but Stifel analysts said those fell short of justifying its current valuation.

Another brokerage, Canaccord Genuity, said the U.S. election-related enthusiasm had caused a "disproportionate amount of capital flow" into Canadian producers.

Shares of Tilray, which is being taken over by Aphria in a complicated reverse merger, are up more than 400% since the deal was announced in December following new agreements to supply its medical cannabis to European markets.

Aphria has gained 243% over the same period, as companies across the sector surged on a wave of legalization in major U.S. states and the Democratic party's promise to decriminalize the plant at the federal level.

Despite those gains, about 37% of Aphria's free float was out on loan for short-sellers, compared with 27.3% at the end of January, according to analytics firm Ortex. Short interest in GameStop, by comparison, soared to more than 100% of its free float during the short squeeze that pushed its shares higher.

Cannabis stocks light up Reddit as sector surges to new highs
 

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Comments (8)
Joe Messeri
Joe Messeri Feb 11, 2021 10:25AM ET
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Fools chase stocks
Phil Ht
Phil Ht Feb 10, 2021 2:25PM ET
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More intoxicants- just what the worldneeds. Wheee...
Tommi Nuutinen
Tommi Nuutinen Feb 10, 2021 1:58PM ET
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cannabis industry is going up, because the world NEEDS IT, SERIOUSLY. Doctors already write pot to pain, not opioids . it is gonna break through! I own 5 different, no sorry six different pot stocks now, and I'm a happy camper(started to buy ladt April....😎
Nunya Beznes
Nunya Beznes Feb 10, 2021 9:49AM ET
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Reuters is only one of many financial news media currently outlets name dropping Reddit/WSB to entice retail investors to pump up there sus stock,Dare i sayStay Woke, And may all youre investments prosper 💪🏿
Casador Del Oso
Casador Del Oso Feb 10, 2021 9:36AM ET
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Remember that Joe only supports legalization of medical, just like Trump. Google it...
James Pattison
James Pattison Feb 10, 2021 9:21AM ET
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Im on reddit... this is not really factual... but wjen has reuters been concerned with the truth
Cristian Ravagnati
Cristian Ravagnati Feb 10, 2021 9:01AM ET
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bla bla lies and lies.. source: im on reddit...
Ondrej Kraus
Ondrej Kraus Feb 10, 2021 8:42AM ET
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Geez, another lies and disillusion?
IceIce Baby
IceIceBaby Feb 10, 2021 8:42AM ET
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I think cannabis stocks were already better bets than GameStop.
 
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