Friends, you might have noticed cannabis stock prices going up lately. Granted, prices have been rising steadily since the October 7, 2020 Vice Presidential debate, in which then-candidate (and now Vice President) Kamala Harris said that she would advocate for federal decriminalization of cannabis (link), ostensibly in anticipation of where we find ourselves today, with a Democratic-controlled Senate and House and early public signs of support for, well, something. (link)
If you’ve been paying close attention, you might have also noticed that cannabis stock prices have been particularly strong (I believe “soared” is an apt choice of terminology) over the past couple of days. Well, it turns out there’s a reason for that. Bloomberg (link) and Business Insider (link) are reporting that the same phenomena that brought GameStop’s stock to the attention of the general public over the past few weeks may now be happening in public cannabis stocks.
Indeed, the reports suggest that there’s a “short squeeze” happening with certain cannabis stocks, being driven by traders connecting in online forums. In short (pun sort of intended), a short squeeze occurs when the price of a stock with a lot of short interest (meaning, a lot of traders have borrowed and then sold that stock short relative to the total number of shares outstanding) jumps, causing the short seller to incur losses quickly, forcing them to buy back shares to cover (effectively, close out) their short position, thus causing the price to go even higher. (link) That’s what happened to GameStop, and that apparently has been happening to certain cannabis stocks in the past few days, with other cannabis stocks benefitting from such mishegas.
What to make of this? Probably not that much. We might see some of these companies quickly sell more stock to the public to take advantage of the higher prices (usually better for a company to sell new stock to the public when the price is high and there’s a lot of demand). We might see that there’s now more interest by investors generally in the industry, potentially improving trading volumes (meaning the number of shares traded) in what’s historically been a not-very-liquid public market (meaning not that many buyers and sellers to trade).
To me, I think this is another sign that, in many ways (but surely not all), the cannabis industry is just the same as any other.