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Canadian stocks with exposure to the marijuana sector remain a target of short sellers in April, according to short-interest data collected by The Globe and Mail.

Other sectors in short-sellers’ sights, to a lesser extent, include small-cap financials exposed to the housing market, energy producers based in Alberta and fintech companies launching new financial technologies, such as blockchain.

Short sellers borrow shares and sell them on the expectation the price will fall and give them a profit when the shares are returned to the owner. Studies in scholarly journals have found that short sellers tend to get it right on average – so if you own a stock they are targeting, you might want to double-check your reasons for holding. And if you do short selling, there could be an idea for a trade or two.

Table I below shows the 20 Canadian companies with the highest percentage of shares on loan as of April 17. Data for loaned-out shares serve as a proxy for short sales and are provided by research firm IHS Markit. It collects the data from prime brokers in the securities-lending market on a daily basis. This is a different collection point and frequency than TMX Datalinx and other sources of short-sale data.

The 20 companies with the highest percentage of shares on loan (as of April 17)

CompanyTickerSector% of shares shortChange over month
Badger Daylighting Ltd.BADCapital Goods24.9%1%
Quebecor Inc.QBR.BMedia22.0%2%
First Majestic Silver Corp.FRMaterials18.5%-7%
Pretium Resources Inc.PVGMaterials14.8%-4%
Boardwalk Real Estate Investment UnitBEI.UNReal Estate14.5%-12%
Home Capital Group Inc.HCGBanks14.0%12%
Cineplex Inc.CGXMedia12.8%25%
Genworth MI Canada Inc.MICBanks12.8%7%
Canadian Western BankCWBBanks11.9%-24%
Maxar Technologies Ltd.MAXRCapital Goods11.7%-3%
Ritchie Bros. Auctioneers Inc.RBAPharma & Biotech10.9%-11%
Labrador Iron Ore Royalty Corp.LIFMaterials10.5%-9%
Birchcliff Energy Ltd.BIREnergy10.3%-13%
Transcontinental Inc.TCL.ABusiness Services9.1%20%
Canopy Growth Corp.WEEDMarijuana8.9%22%
Kelt Exploration Ltd.KELEnergy8.5%-7%
Hudson's Bay Co.HBCRetailing8.4%26%
Sandstorm Gold Ltd.SSLMaterials8.1%-9%
Baytex Energy Corp.BTEEnergy7.7%-1%
Crew Energy Inc.CREnergy7.5%-0.4

Source: IHS Markit

Table I saw many of the same companies carry over from the previous month.

But there was one new notable entry: Canopy Growth Corp., the leading firm in the marijuana sector. It landed on the table in the 15th spot, with 8.9 per cent of shares sold short.

After Canopy’s stock hit a high of $45 in January, marijuana stocks began to sell off, leaving Canopy hovering near $30 by the time April arrived. Despite this drop, valuation remains rich. As an article published March 30 in Barron’s pointed out, the sector is valued more than 100 times revenues reported in 2017. It is valued several hundred times more than 2017 cash flows.

Table II below shows the 20 Canadian companies whose shares are the most expensive to borrow, according to data from Interactive Brokers. The cost to borrow is another way to gauge bearish sentiment since rising demand for loanable shares pressures borrowing rates higher, especially when they are hard to borrow (for example, when there is a small number of shares in margin accounts).

The 20 most expensive shares to borrow (as of April 16)

CompanyTickerSectorCost to borrow (annualized)
Midas Gold Corp.MAXGold59.8%
Horizons Marijuana Life Science ETFHMMJMarijuana44.5%
Organigram Holdings Inc.OGIMarijuana41.4%
Street Capital Group Inc.SCBMortgages38.0%
Wealth Minerals Ltd.WMLMaterials32.6%
Ballard Power Systems Inc.BLDPFuel cell32.2%
Lithium Americas Corp.LACMaterials29.9%
Imperial Metals Corp.IIIMaterials29.7%
Titan Medical Inc.TMDMarijuana24.5%
Novo Resources Corp.NVOMaterials24.4%
Abcann Global Corp.ABCNMarijuana24.0%
Newstrike Resources Ltd.HIPMaterials23.9%
Garibaldi Resources Corp.GGIMaterials23.7%
Goldmoney Inc.XAUFintech22.7%
Mountain Province Diamonds Inc.MPVDDiamonds21.9%
Excellon Resources Inc.EXNMaterials21.8%
Mogo Finance Technology Inc.MOGOFintech21.0%
Canopy Growth CorpWEEDMarijuana18.6%
Hydropothecary Corp.THCXMarijuana18.2%
Scythian Biosciences Corp.SCYBMarijuana17.9%

Source: Interactive Brokers

Jumping onto Table II into the top spot is Midas Gold Corp.

The company develops and restores old mining sites. In mid-January, its share price spiked upward by more than 75 per cent, rising to $1.08 after an investment newsletter issued a strong buy recommendation on the belief the company was likely to win approval to extract gold and antimony deposits on abandoned properties in the Stibnite mining district of Idaho.

The stock is now trading just above a dollar, putting market capitalization at $192-million compared to the company’s net asset value of $43 million. In the fourth quarter of 2017, Midas Gold had zero revenues and negative cash flow of $7.9-million.

Also jumping onto the table this month was Ballard Power Systems Inc., a developer and manufacturer fuel-cell batteries.

It reported revenue of US$40.3-million and a net loss of US$2.9-million for the fourth quarter. In 2017, Ballard Power’s shares gained more than 150 per cent but they are down in 2018 to nearly $4.50 on the TSX.

A “strong sell” report released in January by short-seller Spruce Point Capital concluded that the company’s Chinese growth ambitions, which have been a key driver of recent share-price gains, are bound to disappoint because of a poor choice of Chinese partners and underdevelopment of the infrastructure for fuel cells in China.

Some caveats about short selling may be worth mentioning. While studies have found a link between short sales and stock underperformance, it is just an average tendency. Sometimes, there will not be a drop in price within a reasonable period of time. Moreover, short positions are not always bets on falling prices but sometimes used for hedging purposes. And, if good news emerges for a company and causes short sellers to unwind their trades in a rush, a short squeeze may develop and drive prices higher.

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