To look at Cannabis One Holdings Inc. is to view a bloodied stock chart squashed by the weight of a crushing short position
.
The idea behind trading ahead of a deal in the case of Cannabis One is this: open a short position, possibly a naked short, and then cover it by picking up shares through the planned capital raise, where stock can be acquired for a discount to the market price. Long investors can also profit by recycling their stock, selling off after hearing about a financing, then buying in again at a discount during the capital raise.
But investors shorting the stock ran into a problem. Mascio caught wind of the increasing position and terminated the financing, canceling what would be the easiest method to close out a short position. During the period Mascio says the company stock was hurt by shorts, it released full-year financial statements and accelerated the expiration of some warrants at the behest of the investment bank — which contributed to a 40% single-day plunge, though the company rescinded the acceleration.
The trading strategies that rely on the pot industry’s thirst for cash have involved some of the largest businesses such as Canopy Growth Corp. CGC, -0.86% WEED, -0.92% When Aurora Cannabis Inc. ACB, -0.13% ACB, +0.20% traded as a penny stock, for example, an unknown fund shorted the stock ahead of several of its early bought deals, according to a hedge-fund manager familiar with trading and financing.
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