Many investors do not believe all the hype regarding pot stocks and believe that the industry is overvalued. Below are the 20 most shorted cannabis stocks.

Short-selling

• Short-selling is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference.

Short Squeeze

• A short squeeze occurs when short sellers either panic or are compelled to buy stocks to cover those that were previously short sold.
• This leads to a lot of artificial buying, not based on fundamentals, that causes a stock or ETF to move higher in price and when short squeezes end, artificial buying goes away and stocks drift down.
• Marijuana stocks are especially prone to short squeezes and a big part of the run-up in marijuana stocks earlier this year was due to short squeezes.

Short Interest Ratio

• The short-interest ratio is a simple formula that divides the number of shares short in a stock by the stock's average daily trading volume.
• Simply put, it can help an investor very quickly find out if a stock is heavily shorted or not shorted versus its average daily trading volume.

Short Volume

Short volume is a data set that can be used to understand investor sentiment:

• If the short sale volume increases as a percentage of the total volume, then that suggests a bearish (negative) sentiment by the market.
• If short sale volume decreases as a percentage of total volume, then that suggests a bullish (positive) sentiment.

Short Volume Ratio

• The short volume ratio is the total number of short shares traded divided by the total shares traded each day

Based on the above definitions we can conclude that stocks that are being shorted are expected to go down in price and the greater the shorting ( the higher the short-interest ratio/greater the short volume ratio) the greater the expectation that those stocks will drop in price.

Cost Of Short Selling

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, and that is why short sales are typically shorter-duration trades.

Below are the 20 most shorted cannabis stocks as reported by WeedStreet420:

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.