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Short sellers are getting killed in cannabis stocks this month.

December mark-to-market losses in the 20 most heavily shorted cannabis stocks are more than $130 million, according to short selling data provider S3 Analytics. Shares of Canopy Growth (ticker: CGC), for instance, are up more than 40% over the past month. Still, betting against marijuana stocks has been a winning trade for the bears in 2019. Total profits approach $1 billion.

It looks as if short covering—exiting bearish bets—is the reason for the recent gains. If short covering continues into year-end, the sector rally could continue.

Bearish investors sell stock short—borrow shares and sell stock they don’t own—betting on price declines. The average short interest—the amount of stock sold short relative to the total amount of shares available for trading—is typically about 2% to 4% for the Dow Jones Industrial Average.

Not all short sales indicate bearishness, though. Investors will sell stock short to hedge portfolio positions. Brokerage firms will sell stock short for other reasons, such as to hedge stock-options contracts they make a market in.

The average short interest for the 20 marijuana stocks S3 is tracking is 17%, about 8 times the average short interest in the market. “There was a net decrease of 11.6 million shares of cannabis stocks shorted,” S3 Analytics wrote in a research report on Wednesday. Buying back borrowed shares is called short covering. It is one reason heavily shorted stocks rally from time to time.

Investors cover short selling for a variety of reasons, such as taking profits. But short selling can get pricey. It costs money to borrow shares—just like borrowing money from a bank—and when stocks become heavily shorted, borrowing gets expensive. In the case of cannabis, it costs investors almost $3 million a day to short the sector. That is almost $1.1 billion a year.

There are two stocks that cost more than 50% to borrow: Hexo (ticker: HEXO) and Tilray (TLRY). That means, over a year, bearish investors would pay about 50% of the stock’s value to borrow shares. Borrowing costs are one reason short sales are typically shorter-duration trades.

Short selling also typically makes stocks more volatile. The 20 cannabis stocks S3 studied are more than 10 times as volatile as the S&P 500. (That is just a proxy. Individual stocks are typically more volatile than all stocks in aggregate.

Investors might be surprised to learn there are that many cannabis stocks to invest in. The total market cap of the 20 stocks S3 wrote about is only about $30 billon, and the market value has dropped about 30%, or $14 billion, year to date. The total market cap of the S3 20 is only about 13% of the market value of, say, Philip Morris International (PMI) and Altria (MO).

Short selling is hard, and typically the domain of professional investors. But the effects of short selling, like short-term rallies and stock volatility, impact all investors.

Write to Al Root at allen.root@dowjones.com