A Thesis on Canopy and Aurora’s Significant Stock Gains

The TDR Three Key Takeaways for Canopy and Aurora:

  1. Both Canopy Growth and Aurora Cannabis experienced significant stock gains due to low initial stock prices, positive external developments including expansions into Germany and potential changes in Canadian cannabis tax policies, alongside favorable industry developments in general.
  2. A potential short squeeze, similar to the GameStop event in 2021, is identified as a key driver behind the sharp rise in stock prices. Data science models had predicted Aurora and Canopy as top candidates for such an event, primarily because of their dual listings on TSX and NASDAQ.
  3. We should consider utilizing data science models that predict short squeezes as a methodology to identify potential future stock gains, highlighting the unique position of Canopy and Aurora due to their dual listings and recent company developments.

In the past 30 days, Aurora Cannabis (TSX:ACB, NASDAQ:ACB) has seen its value increase by over 137%, a significant rise. However, Canopy Growth (TSX:WEED, NASDAQ: CGC) outperformed this with a surge of over 260% during the same timeframe. This rapid appreciation in stock value prompts the question: Why have these stocks risen so sharply in such a short period? Based on my research, I present my thesis and a methodology to identify other companies that might exhibit similar performance.

My analysis identifies five reasons behind the substantial gains observed:

  1. Initially, both companies’ stock prices were at a low point. It’s well-known among those following the sector that Canopy was down 85% from its 52-week high, while Aurora had decreased about 75% from its peak.
  2. Positive external developments played a role. Both companies are expanding into Germany, as highlighted in my March 27th, 2024 article, “Germany’s Green Rush: Companies Set to Capitalize,https://thedalesreport.com/cannabis/germanys-green-rush-companies-set-to-capitalize/” detailing their potential gains from changes in German cannabis policies. Additionally, Canada is considering revising its excise tax on cannabis, which could benefit both companies. There have also been favorable developments in the cannabis industry, including in Florida and ongoing hopes for policy changes in the USA.
  3. Recent positive news about company operations contributed. Canopy has been strategizing for its US expansion, and Aurora has significantly reduced its debt. However, these factors alone typically do not lead to such dramatic stock price increases.

This leads to the next points about a potential short squeeze, reminiscent of the GameStop event in January 2021. During this period, a dramatic increase in GameStop’s stock price was propelled by retail investors. This forced institutional investors, who had bet against the stock, to purchase shares at rising prices, further inflating the stock value. I believe the next two points are key.

  1. Data science predictions indicated both Aurora and Canopy were prime candidates for a short squeeze. According to Fintel.io’s Short Squeeze Score, which assesses the likelihood of a squeeze using various metrics, Aurora and Canopy ranked in the top 11% and 8% respectively, among candidates likely to experience such an event. But why not other Cannabis stocks like MSO in the USA? Well, lets look at point number five.
  2. The dual listings of Canopy and Aurora on both the TSX and NASDAQ facilitated the conditions for a short squeeze. This accessibility made it easier for investors to short sell these stocks, attracting more short interest from hedge funds and other investors due to lower margin requirements and broader approval for shorting.

While it’s uncertain why Canopy and Aurora’s stocks surged so dramatically within a month, this is my thesis. How can this be predicted in the future? I think we should all be looking at data science short squeeze models closer to see what could happen with any stock we follow. I am thinking this is something maybe we should track publicly at TDR, if you would like something like this, please reach out and let us know your feedback. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.

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