Though 2019 was a brutal year for weed stocks in Canada and the U.S., that meant it was a stellar year for short sellers, who harvested nearly $1 billion from shorting the top 20 cannabis companies according to a new analysis.

As the sector entered the year with big promises and fat valuations, quarter after quarter of results that did not live up to the expectations set by the companies themselves sent weed stocking plunging. The Horizons Marijuana Life Sciences Index ETF

HMMJ, -0.58%

 fell 43% in the past year and the ETFMG Alternative Harvest ETF

MJ, -1.01%

 dropped 36%, while the S&P 500 index

SPX, -0.71%

 has gained 32% in the past year.

Short sellers collected total mark-to-market profits of $993.3 million, according to research released late Friday by S3 Partners Managing Director Ihor Dusaniwsky. Shorting Aurora Cannabis Inc.

ACB, -0.99%

ACB, -1.14%

 through the year would have yielded the most profit, with investors banking $264.8 million, S3 found. Cronos Group Inc.

CRON, -3.12%

CRON, -2.62%

 netted shorts $217.1 million and Tilray Inc.

TLRY, -2.38%

 gave investors a profit of $174.3 million.

Among the major licensed producers in Canada, only Aphria Inc.

APHA, -0.80%

APHA, -1.38%

 generated a total loss for shorts last year, of $65 million. Organigram Holdings Inc.

OGI, -2.58%

OGI, -0.44%

 also generated a net loss for shorts, but just barely: nearly $600,000.

Investors looking to jump into a short position now will pay handsomely to do so. The average cost to borrow stock across the entire sector is 26.5%, and 30.5% among the top 20 names, costing about $2.8 million a day or $1.01 billion at those rates. The top 20 names make up nearly 90% of all the weed stocks investors are borrowing to short.

“High stock borrow fees in most of the cannabis stocks are taking a large bite out of mark-to-market profits and discouraging increased short selling in the sector,” Dusaniwsky wrote. “If any stock rallies significantly, the chances of a single stock squeeze are higher than in most other sectors in the market due to these high stock borrow fees.”

Read: ‘CBD has the potential to harm you,’ FDA warns consumers

The most expensive stocks to short are Hexo Corp.

HEXO, -4.27%

HEXO, -4.21%

 , which carries a 66% borrow fee in the U.S., and Tilray, which carries a 59% borrow fee. Canopy Growth Corp.

CGC, -1.14%

WEED, -1.15%

 had the most short interest at $1.23 billion, which amounted to 26% of the float. Its borrow fee was 52%.

Dusaniwsky also added that without more hedge funds and long only managers investors should continue to expect concentrated shorting of a few stocks, high borrow costs and the risk of a short squeeze if the supply available for loan decreases.

Don’t miss: Cannabis stocks slammed as analysts say Canopy’s new CEO faces big challenges

Financial technology and analytics firm S3 Partners follows 243 cannabis companies with a combined market valuation of $86 billion.

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2020-01-03