By Shariq Khan and David Randall
(Reuters) – Interest from retail investors appeared to dramatically boost cannabis stocks on Wednesday, signaling that the recent commercial frenzy behind Reddit favorites like GameStop is shifting to other companies.
Tilray’s shares jumped 40% in morning trading, while shares in Canopy Growth Corp and Aurora Cannabis Inc were up more than 12%. The ETFMG marijuana stock exchange fund, which has more than doubled in value since the November presidential election in the United States, gained almost 10%, while the broad S&P 500 index rose just 0.2% before falling.
The moves came as posts promoting cannabis stocks as the next GameStop spread through the popular WallStreetBets forum on Reddit, relating it to the small squeeze that pushed the video game retailer’s stock up more than 1,650% in January.
“I missed the Gamestop boat, but I don’t think we’re going to miss this one,” wrote one user.
The forum has become a must for financial institution operators since the joint action of some of its 8 million participants has proven to be sufficient to force profound losses on a handful of short hedge funds in January.
GameStop’s stock has fallen more than 85% since its $ 347.51 closing peak on January 27, crowning a wild trip that illustrated the power of retail investors trading on commission-free platforms like Robinhood to influence markets financial resources.
Swaggystocks, which aggregates views on shares commented on on the WallStreetBets forum, showed that Tilray was the most voted, or highly praised, share in the group.
“I don’t think the retail gambler’s story goes away overnight,” said Mirabaud salesman Mark Taylor. “In fact, I’m just watching the price move and trying to figure it all out.”
The changes promised by some Democrats in Congress could help give US cannabis companies access to more traditional methods of banking and open the sector to new institutional investors.
However, some analysts argue that company valuations are becoming unjustified, especially for Canadian companies like Tilray, Aphria and Canopy Growth, who can gain very little from changes in the U.S.
Canopy reported a reduction in adjusted losses in third quarter results on Tuesday, but Stifel analysts said they were unable to justify their current assessment.
Another broker, Canaccord Genuity, said that enthusiasm related to the elections in the United States caused a “disproportionate flow of capital” for Canadian producers.
The shares of Tilray, which is being acquired by Aphria in a complicated reverse merger, have risen more than 400% since the deal was announced in December, after new deals to supply its medical cannabis to European markets.
Aphria gained 243% in the same period, as companies across the industry emerged with a wave of legalization in major U.S. states and the Democratic Party’s promise to decriminalize the plant at the federal level.
Despite these gains, about 37% of Aphria’s free float was on loan to short sellers, compared with 27.3% at the end of January, according to analyst Ortex. The stake sold in GameStop, by comparison, skyrocketed to more than 100% of its free float during the sales squeeze that pushed its shares up.
(Reporting by Shariq Khan in Bengaluru, Thyagaraju Adinarayan and Julien Ponthus in London and David Randall in New York; Edited by Patrick Graham, Saumyadeb Chakrabarty and Dan Grebler)