Citron: This Weed Stock Could Surge 80%

Marijuana stocks APHA, ACB, and CGC are riding sector tailwinds

Dec 7, 2018 at 1:23 PM
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U.S. stocks are lower again today, amid lingering concerns about U.S.-China trade and after a tame jobs report. However, one group is bucking the trend: weed stocks. Aphria Inc (NYSE:APHA) is higher on a nod from Citron Research, while fellow pot stocks Aurora Cannabis Inc (NYSE:ACB) and Canopy Growth Corp (NYSE:CGC) are enjoying a halo lift from Cronos Group (CRON), which just scored a big investor in Altria (MO). Here's a closer look at what's moving the shares of APHA, ACB, and CGC.

Citron Sees 80% Upside for APHA

Notable short seller Citron Research today tweeted "Congrats to CRON," after Altria said it took a $1.8 billion stake in the company. Further, the tweet said fellow cannabis concern Aphria "is compelling on all metrics," and predicted a move up to $10 -- a premium of more than 80% to yesterday's close at $5.54.

APHA shares are among the best of the New York Stock Exchange (NYSE) today, up 7.2% to trade at $5.94. Earlier this week, the equity sank to record lows on a scathing report from Hindenburg Research and Quintessential Capital Management, alleging that Aphria's Latin American acquisitions are "virtually worthless." The stock just began trading on the NYSE on Nov. 2, and still remains more than 50% below its Nov. 7 peak of $13.45.

So far today, about 12,000 APHA calls have changed hands -- 10 times the average intraday pace, and roughly double the number of puts exchanged. That's already an all-time high for the freshman weed stock. Digging deeper, however, it appears some speculators are employing calls to bet on a short-term ceiling for the security, selling to open December 7.50 calls.

ACB Stock Rides Sector Tailwinds

Aurora Cannabis stock is enjoying sector tailwinds, last seen 8.7% higher at $5.74. The security is on pace to end atop its 10-day moving average for the first time in nearly a month, after yesterday touching its lowest price since ACB first began trading on the Big Board on Oct. 23. The shares are still down 33.5% from their record peak of $8.62 -- tagged on the day of their U.S. debut.

Despite the stock's slide, options traders have remained devotedly bullish. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 13 ACB calls for every put during the past two weeks. That trend is being echoed today, with around 8,600 calls exchanged so far -- two times the norm -- compared to fewer than 700 puts.

CGC Stock Bounces Off Support

Canopy Growth shares -- which have their own high-profile investor in Constellation Brands (STZ) -- are also enjoying a halo lift from CRON, last seen 3.1% higher to trade at $31.27. The stock has spent the past few weeks finding its footing in the $30-$32 region, and while CGC has surrendered about 47% since its Oct. 16 high of $59.25, touched just before Canada legalized recreational marijuana use, the shares have still more than doubled in the past year.

Coming into today, the pot stock was trading near oversold territory, with a 14-day Relative Strength Index (RSI) of 35. Should the equity extend today's bounce, there's plenty of fuel for a short squeeze to drive CGC higher. Short interest jumped 31% in the past two reporting periods, and now sits at a record high, with more than 10% of the stock's float sold short.


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