What do Emerald Health Therapeutics Inc (CVE:EMH) (OTCMKTS:EMHTF), Cannabis Wheaton Income Corp (CVE:CBW) (OTCMKTS:CBWTF), Newstrike Resources Ltd (CVE:HIP) (OTCMKTS:NWKRF), The Hydropothecary Corp (CVE:THCX) (OTCMKTS:HYYDF) and AbCann Global Corp (CVE:ABCN) (OTCMKTS: ABCCF) have in common? As the headline suggests, they’re the most shorted companies (by $ value) on the TSX Venture Exchange since February 28. Considering the cannabis sector is showing signs of breaking out, short sellers may be rather uncomfortable at the moment.

Leading the pack are Emerald Health Therapeutics and Cannabis Wheaton Income. Both companies finished 1-2 in total net short traded value on the TSX-V, and both finished 1-3 respectively in largest net short increases by traded value. Below is the latest data:

Largest Short Positions, 16 Mar 2018 ($CAD)

Company Name Symbol 15 Mar 2018 28 Feb 2018 Net Change % Change % Total Traded Value EMH Emerald Health Therapeutics, Inc. 51,220,918 26,444,175 24,776,743 48.37% 33.563 CBW Cannabis Wheaton Income Corp. 42,397,757 27,529,062 14,868,695 35.07% 38.046 HIP Newstrike Resources Ltd. 32,192,675 24,495,476 7,697,199 23.91% 24.803 THCX The Hydropothecary Corporation 22,114,588 17,894,466 4,220,122 19.08% 21.054 ABCN Abcann Global Corporation 18,895,418 20,267,714 -1,372,296 -7.26% 32.478

Largest Net Increases, 16 Mar 2018

Company Name Symbol 15 Mar 2018 28 Feb 2018 Net Change % Change EMH Emerald Health Therapeutics, Inc. 51,220,918 26,444,175 24,776,743 48.37% JET Canada Jetlines Ltd. 18,085,641 1,628,753 16,456,888 90.99% CBW Cannabis Wheaton Income Corp. 42,397,757 27,529,062 14,868,695 35.07%

While none of these aggregate dollars shorts are particularly extreme (short sellers were more active at the January 2018 sector highs), it does show cannabis stocks continue to be targeted on bounces. That includes sector leader Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) corporation, which saw its own $CAD short interest rise 31.34% from February 28-March 15. So far that’s a call which is decidedly underwater.

Aside from Emerald Health, perhaps the most notable Top 5 individually shorted small cap name is Newstrike Resources. The stock is up an astounding 56.79% off the February 28th close, and boasts only two red sessions during that time.

As investors may recall, the stock was taken to the woodshed in late January/February after Aurora Cannabis decided to acquire CanniMed Therapeutics (TSE:CMED) (OTCMKTS:CMMDF) instead. Prices cratered over 75% peak-to-trough (intraday) as investors bailed now that the expected buyout premium had evaporated.

In conjunction with the slaughter however, Newstrike had also developed a hefty short position. In fact, it grew so large as to become the most shorted stock on the TSX by aggregate share amount. The large amount of short covering has likely combined with bottom-picker interest to boost the bid in rather consistent fashion.

Currently, Newstrike is pressed up against its 50-Day MA ($1.26) and its short-term peak at the February swing highs (double top). These are two stiff resistance factors considering the stock may be running out of investor energy. Should prices be able to smash through the $1.35/share mark or so, it might presage the direction of its equally-shorter peers in the group.

It’s something the Midas Letter is keeping our eye on.

Author’s Take

Given that the Top 5 shorted TSX Venture stocks (including WEED), all are appreciably higher since short sellers started diving in, it’s likely a significant cadre of investors are underwater. Since short sellers are generally considered ‘weak hands’ in the investing world, it shouldn’t take much more upwards price action to jostle them out. If so, this could provide kindling for short term upside movement.

However, it’s clear the battle between bulls and bears is still playing out. As of this writing, Canopy Growth is looking weak after decidedly breaking free from it’s 50-Day MA and recent trading range. So there’s good indication the bears are not giving up. Other sector leader—Aurora Cannabis—poor 2-week recent performance only reinforces this fact. Finally, there’s nothing in the Horizons Medical Marijuana Life Sciences ETF (TSE:HMMJ) which indicates a sector breakout is imminent.

The only logical conclusion is that the cannabis market is not firing on all cylinders right now. While there are certainly interesting sub-narratives within the space, it remains to be seen whether Canopy Growth’s strong performance over the past couple sessions was a false alarm.