Marijuana Stock Shorts: Why Investors Are Down on These Companies

shorted marijuana stocks
iStock.com/Michael Nosek

Marijuana Stock Shorts

If a company is being shorted, that’s almost always a bad sign. Of course, sometimes the ones doing the shorting get it all wrong, but you generally don’t want to see too many people betting on a company to lose value. With that in mind, let’s take a look at a couple of marijuana stock shorts. These two companies have been the target of a large chunk of the shorting going on in the market right now.

The first company we’ll take a look at is Insys Therapeutics Inc (NASDAQ:INSY). Over 16% of the company’s stocks are sold short.

Insys stock has been in the dumps lately, falling by nearly 20% over the past month, proving many of those who had shorted correct.

There are several key problems with Insys stock, but perhaps the most important one is something that has nothing to do with marijuana.

The company has been getting killed due to one of its strongest sellers, “Subsys,” being an opioid in a time when “opioid” has become a dirty word.

The drug epidemic has made selling and marketing the drug more difficult. Not to mention that an investigation is currently underway by the Department of Justice over how the company has marketed its opioids.

With public opinion of pharmaceutical companies already at a pretty pitiful point due to a number of recent price-gouging and over-diagnosis stories, INSY stock is simply not in a strong position right now.

Chart courtesy of StockCharts.com

That it’s doing research into medical marijuana drugs is unlikely to pull the stock out of the depths, and therefore I would steer clear of Insys stock for now.

Another company involved in the marijuana sector that has been the target of a large portion of shorting is Cara Therapeutics Inc (NASDAQ:CARA).

A whopping 22% of CARA stock is sold short. Again, this should be ringing alarm bells when you see such a massive chunk of a company being shorted.

The company has faced a number of setbacks on the clinical trial front for several of its drugs, even as it tries to get into the medical cannabis game.

As such, CARA stock is down over 14% in the past month, with little chance that a major breakthrough in medical marijuana is likely to fully rescue the stock.

Analyst Take

So we know why these two companies are being shorted—the forecast for both stocks is dicey—but what can marijuana investors take away from this?

First, it’s almost always better to bet on a marijuana company that is fully into the sector, rather than one that is dabbling. The reason being is that you don’t have to worry about other influence—like the opioid epidemic—playing a part in your portfolio. If you focus on marijuana and know the market well, there’s simply no reason to take on added risk by investing in these pharmaceutical companies when there are a great many pure-play marijuana stocks that have far less downside.

Second is that you don’t want to be taken in by false, or at least misleading, information. CARA stock and INSY stock are often marketed as marijuana stocks. While this isn’t necessarily untrue, as you read above, there’s a lot more going on with these companies than marijuana.

If you want to truly be immersed in the marijuana industry, enjoying the huge growth potential (and of course having to deal with the volatility), then you should stay away from companies that are merely dabbling in cannabis.