Will the Cannabis Sector Benefit From the Banning of Naked Short Selling???

Saturation, margin compression, destructive debt…these are just some of the issues that have plagued the North American cannabis industry for the better part of a decade.

Besides for these factors, one of the most significant issues associated with the North American cannabis industry is related to the amount of naked short selling that occurs. For our readers who are unaware, naked short selling is when an investor bets on a stock to trade lower without having any protection in place in case the stock trades higher.

When an investor shorts a stock, there is limit on the amount of money that can be made (maximum payout takes place if the stock price goes to $0). On the other hand, there is an unlimited amount of money that could be lost on a short sale since there is no limit on how much a stock could trade for.

Last week, the Investment Industry Regulatory Organization of Canada (IIROC) announced a major development that should have a positive impact on the cannabis sector. The organization released guidance for short selling and provided reasonable expectations for an investor before they make a short sale transaction.

According to the publication, IIROC expects investors without a reasonable expectation for a short sale to have access to enough securities to settle any trade on the settlement date. We consider this to be an important development for the North American cannabis industry and will monitor how the rule is implemented and enforced by the organization.

Although we do not expect the development to have an immediate impact on the cannabis sector, we believe the long-term benefit associated with the rule is substantial. We expect the rule to reduce the amount of volatility in the cannabis sector and will closely monitor companies that have been the target of naked short sellers.

If you are interested in learning about cannabis companies have been the target of naked short sellers, please send an email to support@technical420.com with the subject “Heavily Shorted Cannabis Stocks” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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