Marijuana is the new Tesla. Here is why

The last time marijuana and Tesla (TSLA) made an appearance in the same sentence, the automaker’s stock plunged 9%. That was when CEO Elon Musk smoked pot on a podcast. Roughly a month before that, cannabis references were made with Musk’s cryptic tweet that “funding was secured at $420,” for the number’s significance in the pot culture.

Tesla stocks went up crazy that day and trading had to be halted. Undeniably, marijuana and electric vehicle manufacturer share a mysterious connection!

With the Securities and Exchange Commission (SEC) finally putting a leash on the brash CEO, and Musk himself starting to downplay his aggressiveness, the hullabaloo around the stock seems to be settling. And all that attention is being transferred to cannabis stocks, thanks to the skyrocketing valuations.

Stupendous valuations, endless merit arguments and numerous merger agreements with other Wall Street biggies have put marijuana stocks – primarily Tilray (TLRY) and Canopy Growth (CGC) – in the limelight. As expected, the package includes short-seller interest as well.

For a good part of last year, Elon Musk has been waging a lone battle against short sellers, calling them jerks who did not understand electric vehicles. The fact that Tesla was a company that was not profitable and still had a valuation of over $50 billion had made it the most shorted stock on Wall Street.

In the end, short sellers had the last laugh with $500 million in paper gains following Musk’s debacle with the SEC.

Marijuana stock analysis: You can predict a pothead. A pot stock, not so much.

But all that’s old story and marijuana is the new Tesla. According to data compiled by S3 Partners, combined short interest in about 33 marijuana stocks has risen over 40% to $1.5 billion since the start of the third quarter. All these investors are betting billions of dollars that the stocks would ultimately fail.

In fact, short position in cannabis stocks has been made quite expensive by the increasing number of short sellers as well as the spike in short interest over the past two months. And similar to the case with Tesla stocks, short sellers seem to be willing to through painful periods of losses till the stocks take a plunge.

As investors with short interest resort to wolfpack hunting, future growth might get tough for cannabis stocks, which are already at illogical valuations. This was visible on Wednesday, when the stocks failed to take advantage of legalization in Canada. All stocks tumbled, though a few managed to pare some of their losses by the time market closed.

Marijuana stocks slip after legalization in Canada

While at least some of the Tesla shorts are pre-occupied elsewhere, it might give Musk the breather to focus on the job at hand. Pot, at the end of the day, may not be so bad after all!

Browse through our earnings calendar and get all scheduled earnings announcements, analyst/investor conference and much more!