CNBC’s Frank Holland reports on the action in Cannabis stocks as Reddit’s WallStreetBets crowds seems to spur the move higher. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
Shares of a handful of cannabis stocks are surging on Wednesday, the newest set of targets from the Reddit trading community betting on the federal legalization of the plant under the new Democratic administration.
Shares of Tilray are up about 45% on Wednesday, bringing the stock’s year-to-date gain to more than 650%. Canopy Growth is up 6%, adding to its 100% rally in 2021. Aphria is also popping 10% on Wednesday, adding to its 275% gain this year. Aurora Cannabis is up 19%, bringing its year-to-date gain to more than 120%.
The group of cannabis companies are garnering attention from the same WallStreetBets Reddit army that contributed to the epic short squeeze in GameStop last month. Several posts on the social media forum show users expressing optimism about the stocks’ upside.
$TLRY $APHA calls since 1/5/2021 got me to over $500k today. Still think it has much upside,” one Reddit post said.
“Weed about to make me a millionaire in 2021,” another post, with more than 107,000 likes, said.
“We believe the rally in Canadian names is mostly driven by retail investors, maybe fueled by Robinhood and Reddit, that’s really piling into the Canadian cannabis names in particular,” Pablo Zuanic, analyst at Cantor Fitzgerald told CNBC. “I’m not going to say it’s a GameStop type of case but the Canadian rally is not entirely based on fundamentals. But when we talk to clients we tell them careful trying to short these Canadian names because you know what happened with GameStop on the way up.”
The move in pot stocks could also be related to high short interest ratios, which measure how many of the company’s traded shares are being used in bets against the company. GameStop and AMC Entertainment were targeted by retail traders in part because their high short interest made the stocks attractive candidates for a so-called short squeeze. Tilray’s short interest is equal to 22.5% of the shares available for trading, according to FactSet. The official short interest data is current as of Jan. 29.
“The feedback is its some of the message boards are putting the big salient names in their scope,” W. Andrew Carter, an analyst at Stifel told CNBC. He has a sell rating on Canopy Growth and Aurora. Stifel has a hold rating on Aphria and Tilray.
“The shorts have mostly gone home for the year so the unwinding isn’t as much of a tailwind as it was for the early price action it just really is just that much buying and not much resistance,” said the analyst. “It’s very difficult to justify where these stocks are trading right now.”
While the Reddit traders are seemingly bullish on the names, Wall Street has a different tune. Of the 14 analysts that cover Tilray, only two have a buy rating on the stock, according to FactSet. Of the 20 analysts that cover Canopy Growth, only two recommend buying the stock and of the 11 analysts that cover Aphria, seven have a buy rating.
“This is totally on script for the anti-establishment movement on WSB and Reddit. They are feeling their crowd-funding oats and are now aiming it at whatever social disruption they can cause,” Tim Welsh, founder and CEO of wealth management consulting firm Nexus Strategy, told CNBC. “And no better historical symbol to amplify personal freedom and revolution than pot.”
Part of the discussion on Reddit has centered around the pending merger between Tilray and Aphria. According to a December press release, Aphria shareholders are set to receive roughly 0.84 shares of Tilray per one share of Aphria when the deal closes.
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