In Canada, according to Larry MacDonald of the Globe and Mail, more short sellers are placing bets that marijuana stocks are headed downward in price. In Canada and in several US states the legalization of cannabis is coming and could be a substantial commercial opportunity. The questions of how much growth there will be is the reason for the short sellers.

The company’s ran up in price but as legalization comes people ask what are the sales? what are the profits? and what ratios should a reasonable person use to see if the stocks are poised to grow or should be lower?

The importance of the list of short sellers for the past months which is a regulatory requirement. When you see it ask what theme do investors see or what story is behind the individual stocks? for example:

• the company had a monopoly like conditions, now there is more competition.
• there is a pricing difference between the convertible debentures price and the stock price which presents an arbitrage/hedging opportunity.
• there are problems with execution – in the past projects came in overbudget, not on time and produced less profit than expected.
• for a bank in a regional setting – the area has been experiencing slower growth prospects which means the bank may increase its loan losses
• a company is trying to diversify from a mature industry to one that is growing, however the company continues to carry high debt
• an airline which is dealing with higher fuel prices and more competition from discount airlines.
• the Fed and Central Banks are the world are beginning to tighten up money but raising interest rates, if a company has a high debt load what is the effect of 50 to 100 basis rise?
• a research company has great promise but are the products commercially viable?

Linking to dividend paying stocks, the good thing about a short sellers list is the narrowing down to why it should be on the list. What are the potential problems or what keeps the President up over the weekend? How is he/she fixing it. With dividend paying companies the questions start easier – does the company make a profit? it is reasonably safe and can it earn the money next year? There will be other concerns but as an investor if you are comfortable with the profitability then the other questions are something to balance out between concern and execution of details.

There are more questions than answers, till the next time – to raising questions.