By Shariq Khan and David Randall
(Reuters) – Interest from retail investors on Wednesday appeared to be pushing cannabis stocks higher overall, indicating that the recent trading frenzy behind Reddit favorites like GameStop is shifting to other companies.
Shares of Tilray were up 40% in morning trading, while shares of Canopy Growth Corp and Aurora Cannabis Inc were both up more than 12%. The ETFMG fund for exchange-traded cannabis stocks, which has more than doubled in value since the US presidential election in November, gained nearly 10%, while the broad S&P 500 index rose only 0.2% before falling.
The moves came as posts touting cannabis stocks when the next GameStop spread across the popular WallStreetBets forum on Reddit, linking it to the brief push that pushed the video game retailer’s stock up more than 1,650% in January.
“I missed the Gamestop boot, but I don’t think we’re going to miss it,” wrote one user.
The forum has become a must-watch for traders at financial institutions since the concerted action of some of the 8 million participants proved enough to force big losses in a handful of short-selling hedge funds in January.
Shares of GameStop are down more than 85% since their closing peak of $ 347.51 on January 27, covering a wild ride that illustrated the power of retail investors trading on commission-free platforms like Robinhood to influence financial markets.
Swaggystocks, which gathers sentiment about stocks talked about on the WallStreetBets forum, showed that Tilray was the most up-voted or touted stock in the group.
“I don’t think the retailer’s story will disappear overnight,” said Mirabaud sales trader Mark Taylor. “I’m really just looking at the price action and trying to understand everything.”
Changes promised by some Democrats in Congress could give US cannabis companies access to more traditional banking methods and open the industry to new, institutional investors.
However, some analysts argue that the companies’ valuations are no longer justifiable, especially for Canadian companies like Tilray, Aphria and Canopy Growth, which may benefit little from US changes.
Canopy reported a reduction in adjusted losses in its third-quarter results on Tuesday, but Stifel analysts said those did not justify the current valuation.
Another brokerage, Canaccord Genuity, said the enthusiasm of the US election had caused a “disproportionate amount of capital flow” to Canadian producers.
Shares of Tilray, which will be acquired 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 is up 243% over the same period as companies across the industry boomed due to a wave of legalization in major U.S. states and the Democratic party’s pledge to decriminalize the factory at the federal level.
Despite those gains, according to analytics firm Ortex, approximately 37% of Aphria’s free float was on loan to short sellers, compared to 27.3% at the end of January. Short-term interest rates in GameStop rose compared to more than 100% of the free float during the short squeeze that pushed stocks higher.
(Reported by Shariq Khan in Bengaluru, Thyagaraju Adinarayan and Julien Ponthus in London, and David Randall in New York; edited by Patrick Graham, Saumyadeb Chakrabarty and Dan Grebler)