The rally in Canadian cannabis stocks has ended in spectacular fashion.
The share price of cannabis producer Tilray (NASDAQ:TLRY) fell 50% Thursday, the most ever, ending a record three-day rally as a Reddit-inspired push into cannabis stocks lost steam.
Tilray’s crash helped push the ETFMG Alternative Harvest ETF, known by its ticker symbol “MJ,” down 25% in its biggest ever drop as other pot stocks also swung from gains to losses. Canopy Growth Corp. (TSX:WEED), the biggest cannabis company by market value, fell 22%.
This week’s rally was reminiscent of late 2018, when Canada was about to become the first large economy to legalize recreational marijuana use, sending cannabis stocks surging. Tilray’s three-day gain to start the week was its biggest ever, although it’s still well below the intraday high of $300 it reached in September 2018.
Short sellers have been paring back bets against the cannabis sector since the start of the year amid organized short squeezes on Reddit, according to a report from S3 Partners. Short interest across the sector as a percentage of float has decreased to 15% from 24% at the start of this year.
However, Tilray has been a major outlier after merger arbitrage traders began building up short positions following its announced merger with Aphria in December. Tilray has seen over $1 billion of new short selling, bringing its short interest to 23% of available shares. That has made it a ripe target on Reddit as users have also touted possible cannabis legalization at the federal level in the U.S.
