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Short selling is on the rise on the Toronto Stock Exchange as of mid-February, as highlighted by a jump in short sales for the iShares S&P/TSX 60 Index ETF to a 52-week high of 24.7 per cent of its float.

Also seeing an escalation in bearish bets are some of the short sellers’ usual targets, notably cannabis companies such as Tilray Inc., Cronos Group Inc., Canopy Growth Corp. and Aurora Cannabis Inc.

Short sellers do indeed seem to have it in for the cannabis sector.

Of the 20 companies on the following table with the highest percentage of float short,, almost half are cannabis firms. With the Horizons Marijuana Life Sciences Index ETF down nearly 60 per cent during the past 12 months, a shake-out appears to be looming – which should lead to industry consolidation and lower competition to the benefit of big players like Canopy Growth.

The 20 stocks with the highest percentage of float sold short (Feb. 18)

CompanyTickerShort position as % of floatBorrow fee
Tilray Inc.TLRY-Q42.6%61.5%
Cronos Group Inc.CRON-T35.7%7.5%
Canada Goose Holdings Inc.GOOS-T29.0%1.3%
Canopy Growth Corp.WEED-T26.6%50.7%
iShares S&P/TSX 60 Index ETFXIU-T24.7%0.3%
Tucows Inc.TC-T22.0%1.2%
Paramount Resources Ltd.POU-T20.1%6.5%
Seabridge Gold Inc.SEA-T18.3%1.8%
Aurora Cannabis Inc.ACB-T17.5%32.3%
Hexo Corp.HEXO-T16.9%70.8%
Bonterra Energy Corp.BNE-T16.3%2.0%
Village Farms International Inc.VFF-T15.9%17.3%
Peyto Exploration & Development Corp.PEY-T15.3%0.3%
Green Organic Dutchman Holdings Inc.TGOD-T15.3%18.0%
Aphria Inc.APHA-T15.2%39.8%
Neptune Wellness Solutions Inc.NEPT-T15.2%22.3%
Vermilion Energy Inc.VET-T15.1%0.3%
Cargojet Inc.CJT-T15.0%0.0%
iShares S&P/TSX Capped Energy ETFXEG-T14.6%3.3%
First Majestic Silver Corp.FR-T14.6%0.9%

Source: S3 Partners

Borrow fee is annualized; for interlisted stocks, U.S. trades are included in the totals (after converting to C$).  

Cannabis companies have been on the top 20 list for so long, it seems they’ll never get off. But these things do pass, eventually.

Just look at the companies tied to Canadian housing sector: The likes of Home Capital Group Inc., Genworth MI Canada Inc., and Canadian Western Bank were at the top of the list for most of 2019 – but are now absent.

More resource firms are making their way onto the table, with a heavy weighting in members from the energy industry, including Paramount Resources Ltd., Bonterra Energy Corp., and Peyto Exploration & Development Corp.

In fact, nearly 15 per cent of the iShares S&P/TSX Capped Energy ETF’s float is sold short.

A relative newcomer to the table is Cargojet Inc., which has a near monopoly on delivering time-sensitive parcels by air in Canada and is thus viewed as a play on e-commerce. Along with a recent partnership with to handle its one-day shipping in Canada, this dominant positioning would seem to make Cargojet an unlikely target for short sellers.

But James Hodgins, chief investment officer at Curvature Hedge Strategies, is one trader with a short position, reasoning that the stock has soared to astronomic valuations and corporate insiders have unloaded shares.

The next two tables show the i) 5 largest short positions in terms of their dollar value and the ii) 5 largest increases in short positions by dollar value. They screen out companies with less than 5 per cent of float short because a large short interest by itself may simply reflect a large number of shares trading, not necessarily bearish sentiment.

The 5 stocks with the largest short interest (Feb. 18)

CompanyTickerShort interest (in millions)Short position as % of float
TC Energy Corp.TRP-T$3,219.55.0%
Canadian Imperial Bank of CommerceCM-T$2,870.65.9%
Shopify Inc.SHOP-T$2,711.55.0%
iShares S&P/TSX 60 Index ETFXIU-T$2,197.624.7%
Canopy Growth Corp.WEED-T$1,477.126.6%

Source: S3 Partners

Table excludes companies with less than 5.0% of float short

The 5 stocks with the largest increases in short interest (90 days to Feb. 18)

CompanyTicker3-month increase in short interest (in millions)Short position as % of float
Shopify Inc.SHOP-T$972.05.0%
iShares S&P/TSX 60 Index ETFXIU-T$486.724.7%
Stars Group Inc.TSGI-T$208.59.2%
Aurinia Pharmaceuticals Inc.AUP-T$147.010.3%
TC Energy Corp.TRP-T$130.95.0%

Source: S3 Partners

It is interesting to see Shopify Inc. on both tables. This provider of e-commerce platforms to businesses is growing in leaps and bounds and regularly beats analysts’ projections. It’s Canada’s newest technology star. However, the stock has been rocketing upward for a while and is now very richly valued, trading at about 23 times revenues. Priced for perfection, the slightest bad news should produce a major sell-off: it might be worth going short ahead of upcoming earnings releases – although this could require fortitude to wait out a few more quarters of stellar performance.

When dealing with short sales data, one has to be aware of some caveats. Large short positions are not always in indication of substantial bearish sentiment or an impending decline in stock price.

As mentioned in past articles in this monthly series on TSX short sales, it could reflect a hedge or arbitrage on convertible securities that the company has issued. A large short sale is also at risk of producing a short squeeze, that is, an upward spike in stock price caused by short sellers rushing to buy back the shares they borrowed.

While it is true academic studies have found that short sellers are informed and savvy traders, this is on the basis of being successful at spotting stocks that underperform the stock market. In a rising market, heavily shorted stocks can still go up – just less than the market.

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