Weed storage tank as Reddit buying and selling loses momentum
Several cannabis stocks fell Thursday, giving up some of the strong gains from earlier this week as Reddit traders piled up in the names.
Tilray shares fell 49.7% after rising 50% on Wednesday. Aphria lost nearly 36% and Aurora Cannabis fell 23.5%. Canopy Growth stocks were down 22%.
These pot stocks were ready to extend their rallies ahead of Thursday's opening and kickstart premarket trading. However, shortly before the market opened, the names dropped significantly.
Cannabis stocks will decline Thursday
The group of cannabis companies this week caught the attention of the same WallStreetBets Reddit army that contributed to GameStop's epic short squeeze last month. The social media members posted news about their winnings in Top Facts and encouraged other traders to join in.
"Here we go mine! TLRY to the moon !!!" A post said Thursday.
"Weedstocks, the new WSB darling," said another post.
However, trading appeared to unravel on Thursday and stocks came back down to earth. Several analysts looking at the cannabis companies told CNBC on Wednesday that price action this week had barely any fundamentals.
Part of the discussion on Reddit centered on the upcoming Tilray / Aphria merger. Other social media users have mentioned the possible decriminalization of the plant at the federal level under the Biden administration as a positive catalyst for the group.
The movement in pot stocks could also be related to high short interest ratios, which measure how much of a company's traded stocks are used for betting against a company. GameStop and AMC Entertainment have been targeted in part by retailers because their high interest in shorts made the stocks attractive candidates for a so-called short squeeze. According to FactSet, Tilray's short stake is 22.5% of the stocks available for trading.
Some of these retail investors have held onto these stocks since 2017 and 2018 and are optimistic about the newfound interest of other investors.
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