A worker examines cannabis plants at a Tilray farm.
Source: Tilray
A group of cannabis stocks are sinking on Thursday after the Reddit trading crowd piled into the names on Wednesday.
Shares of Tilray are down 22% on Thursday, after rallying about 90% this week. Aphria is down more than 15%, following a 35% gain this week. Aurora Cannabis is dropping 11% after a nearly 30% rally since Monday. Canopy Growth is down 15% and Sundial Growers is off by 6%.
All of the stocks looked like they were going to rally again in the regular session, with the names up double digits in premarket trading.
Cannabis stocks surge again on Thursday
The group of cannabis companies is garnering attention this week from the same WallStreetBets Reddit army that contributed to GameStop‘s epic short squeeze last month. The social media members have been posting messages about their profits in pot stocks and encouraging other traders to join in.
“Here we go my! TLRY to the mooon!!!,” one post said on Thursday.
“Weedstocks, the new WSB darling,” another post said the same day.
However, the trade appears to be unraveling on Thursday, with the pot stocks coming back down to Earth. Several analysts that cover the cannabis companies told CNBC on Wednesday the price action this week has little basis in fundamentals.
Part of the discussion on Reddit has centered around the pending merger between Tilray and Aphria. Other social media users are mentioning the decriminalization of the plant on the federal level under the new administration as a positive catalyst for the group.
The move in pot stocks could also be related to high short-interest ratios, which measure how many of a 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.
To be sure, some of these retail investors have been holding onto these stocks since their moves in 2017 and 2018 and are expressing optimism about the newfound interest from other investors.
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