My Understanding of our Price DropBear with me, this might get a little rambly. But I've been looking over a few different MMJ sector charts (WEED, APH, FIRE, TPB) and I'm sure most have realized by far that they are very similiar throughout the sector.
Late December/Early January was an incredible bull run to say the least, and most that have been around this sector for a while know that when the bulls run, the bears are close behind looking to pick off the weak. And of course, this has come to fruition, much to the dismay of long time shareholders who have practiced the philosophy of 'hold strong'. But bearish sentiment is extraordinarily taxing to the average home investor, and it's no secret that the bull run was fueled by a flood of retail investors who were riding the green rush that their friends and family had bragged about during the holidays.
Fast forward to earlyish to mid January, and volume had begun to dry up. Of course, this was inevitable. The thrill of doubling and tripling portfolios in a matter of months was replaced by the dread of losing those sweet returns. Short positions started to skyrocket. Market makers, who were in disbelief at some of the valuations were naked short selling (lets say you placed a bid for TBP @ 1.60 - the market maker can fill your bid without actually having any to sell to you with the hopes of simply buying those shares at a lower price, hence pocketing the difference). What if the price went up to 1.70? Would the market maker have to pay more now per share to actuallly fill your "naked" bid? Nope! They would just naked short that bid as well, essentially owing an average of 1.65 per share.
As volume continued to dry, the orders in the 1.60s quickly dried up as well. Lots were content to sell their profits, and so they did. But with low volume and increased selling pressure, the SP started to drop. Enter the bashers. Bold declarations from Lakewood Hedge fund akin to Michael Scott from The Office "I AM SHORT SELLING WEED STOCKS EVERYONE". Retail investors, unsure of what or who to believe, began to panic and sell even at a loss. And I don't think I need to recount late January/February for any investor here.
Today, short positions for almost all MMJ companies are subsiding. Between Feb. 1-15, here are the figures (percent decrease in short positions):
WEED -> -8.6%
APH -> -18.2%
FIRE -> -80.6%
But TBP is different, it is a +14.5%.
I thought this needed some investigation, and here's what makes the most sense. Some of you have already mentioned this, so sorry for the repitition.
First, lets compare the % change in SP from Feb. 8 to today's close (Feb.26/18) between my chosen 4:
WEED -> +0.48%
APH -> -19.2%
FIRE -> -11.6%
TBP -> -20%
Why Feb. 8/18? Thats when TBP announced its bought deal for $10,000,000 @ $1.00. Aside from the unicorn WEED, almost everyone in the sector saw losses in the double digits. And from any analysis that I've read, it is a reflection of the market sentiment that LPs were still overvalued given their current revenues. Forget about growth, any naysayer's response would be "Where are the revenues?!".
Unfortunately, TBP's bought deal occurred during a bearish period, and the underwriters at Echelon were well aware of that, and anticipated that the SP would drop even without the bought deal in place given market sentiment. So what did they do? They quickly exercised the 'over-allotment" option, meaning that they could further sell 1,500,000 more shares of TBP @$1.00 to their subscribers. The deal was over-subscribed to begin with, since the original deal was for $8,000,000 but due to demand it was quickly upsized. And if they could sell out of 10,000,000 shares that quickly, then it isn't difficult to believe that they could sell a further 1,500,000. Remember, Echelon did their due dilligence on TBP and they are incredibly bullish on real medical marijuana (they have an encyclopedia of a report that is available to read), and they would not have agreed to $1.30 warrants if they felt that it wasn't a good deal. And those that subscribed to the deal have relied on Echelon to not lead them astray.
But Echelon wanted to hedge their bets. They knew a drop in the SP was very possible, and even below the $1 that they had just sold to their subscribers. So rather than simply give them away for $1, they short sold them for $1! Why?
1) They can make some money by covering if the stock price dips below a dollar
2) They can essentially 'stabilize' the SP to make sure it stays around $1, since they can make the SP run up in a HURRY by buying up whatever is available under $1.
And don't think that it won't go back to $1.00. They literally sold 10,000,000 shares to investors who rely on their due dilligence to not lose a boatload of money.
Still don't believe me? Remember, TBP was a +14.5% in short positions from Feb.1 to Feb.16 when literally everyone else was closing out their shorts. Here's the math:
Short positions as of Feb. 1/18 = 10,122,664
Short positions as of Feb. 15/18 = 11,843,366
A difference of: 1,720,702
Okay, it's a little more than 1,500,000 but Steve, Janet and Larry (not in any way intended to be real persons) who know about this scheme could easily stand to make a cool 20% gain if they simply took short positions on Feb. 8 or 9 when the SP was hovering around a dollar, or even in the subsequent days when it climbed to 1.09 with the Neptune news.
I believe the deal is already closed, but once TBP releases the news "Bought deal is CLOSED", the subscribers will surely be thinking "What have we done!". Fear not, worried subscribers, Echelon has it all figured out. They will keep buying the shares in the 0.80s and possibly high 0.70s of those who are willing to donate to their coiffures by selling into the thickest bids ever seen on TBP Level 2 data to date (just today, over 300,000 bids at 0.80) until they've made a comfortable amount of money, and then begin to drive the price back up to over $1.00 to make their subscribers breath a collective sigh of relief. Everyone wins! Except those poor terrified souls throwing away their shares and their ultimately their hopes and dreams of seeing $1.50 again.
Until the next bull run, that is.
Congrats Stockhouse, we've figured it out. Now back to the squabbling!