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Short Sellers Cut Aphria Interest, Add Canopy: Cannabis Weekly

Short Sellers Cut Aphria Interest, Add Canopy: Cannabis Weekly

(Bloomberg) -- Some prescient short sellers reduced their positions in Aphria Inc. last month, while short interest in CannTrust Holdings Inc. rose after the company disclosed a serious regulatory breach.

Aphria, which surged 40% Friday after reporting quarterly earnings that beat expectations on virtually all metrics, saw a $23.6 million decrease in the value of shares shorted, the largest drop in July among 150 cannabis stocks tracked by financial analytics firm S3 Partners.

Troubled CannTrust, meanwhile, saw a nearly $400,000 rise in short interest last month. The Canadian producer revealed Thursday it’s under investigation by a joint task force including securities regulators and police after it grew pot in unlicensed areas of its greenhouse in Pelham, Ontario. The stock has lost more than half its value since the breach was first revealed on July 8.

Short Sellers Cut Aphria Interest, Add Canopy: Cannabis Weekly

Canopy Growth Corp. had the largest increase in short interest last month, with nearly $70 million added. This might be an indication that investors aren’t all that optimistic about the company’s prospects after Co-Chief Executive Officer Bruce Linton was fired on July 3. His ouster was the result of pressure from alcohol giant Constellation Brands Inc., which in Linton’s words had decided his “turn” was over. His replacement is likely to be chosen by Constellation, the company’s largest shareholder.

Pot short sellers haven’t had a great year, losing $690 million on the 20 most-shorted names. However, they were able to recoup more than half their year-to-date losses in July due to broad weakness in the cannabis sector.

Overall, the pot stocks and exchange-traded funds tracked by S3 have an average short interest of 8.3% of their float and an average borrow fee of 16.75%, about 21 times more expensive than the overall market. In July, about $170 million worth of new shorts were added to the sector for a total of $5.1 billion.

Aphria CEO

Aphria’s interim CEO Irwin Simon is dropping hints that he’s not going anywhere.

“I don’t look at this as interim,” Simon said Friday in a phone interview. “This is a job I am involved in 24/7 and am really enjoying it.”

Simon, the founder of Hain Celestial Group Inc., a natural snack and personal-care products company, was appointed chairman of Aphria in December and interim CEO in February after a short-seller report resulted in the ouster of former chief Vic Neufeld.

The company’s strong results last week should make a permanent appointment an easy sell to investors.

“Wouldn’t you want me with these results? No, I’m kidding,” Simon said. “We have in place a great plan, we have in place a great team, we have in place great infrastructure and products. I like working with this team in regards to executing on all those things, and there’s some personal decisions I have to make, and just working things out with the board.”

Simon said the company is “absolutely” interested in acquiring assets from CannTrust, which put itself up for sale last week. It’s also taking a close look at the U.S. CBD market but won’t replicate any of its competitors’ approaches to the enormous but legally uncertain sector south of the border.

“If I go back and look today at the U.S. market, whether it’s Canopy or anybody else, who has done it right and who would I like to duplicate, there’s nothing out there,” he said. “I haven’t seen a model yet that’s working for growth, that’s going to work as it becomes legal, that’s going to become profitable. I have not seen a model that is something that I would go after.”

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To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jacqueline Thorpe, Chris Fournier

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