Hedge Funds Absolutely Dumped Marijuana’s “Big Three” in the Second Quarter

For years, the marijuana industry has seemingly shown nothing but promise. For investors lucky enough to have bought into the “Big Three” of the cannabis world — Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), and Cronos Group (NASDAQ:CRON) — at the beginning of 2016, they’d be sitting on quadruple-digit gains as of today.

Mind you, there’s a very good reason why investors have been so bullish on the industry, and especially the Big Three. After global weed sales more than tripled between 2014 and 2018 to almost $11 billion, Wall Street analysts called for worldwide cannabis sales to soar to between $50 billion and $200 billion in roughly a decade’s time. That’s a ton of growth that investors simply can’t overlook…

Investors have been infatuated with the Big Three for years

The pedigree of the Big Three also suggests that they have a good shot at gobbling up significant market share.

Both Canopy Growth and Cronos Group have secured large equity investments, making them the respective No.’s 1 and 2 in terms of cash on hand. Canopy’s 3.14 billion Canadian dollars and Cronos Group’s CA$2.32 billion gives each company ample financial flexibility to push into new markets, develop existing infrastructure, and make acquisitions. Not to mention, Canopy’s equity investment from Modelo and Corona beer maker Constellation Brands and Cronos Group’s investment from tobacco giant Altria gives each company a time-tested business partner to lean on.

As for Aurora Cannabis, it’s made more than a dozen acquisitions since August 2016 and is in line to be Canada’s leading producer. Aside from the up to 700,000 kilos the company may produce annually when all 15 of its grow farms are fully operational, Aurora also has a presence in 25 countries, including Canada.

The ability of the Big Three to expand internationally, forge partnerships, build their production portfolio, and gain brand recognition is a major reason these stocks have been so popular.

But that popularity among hedge funds came to a crashing halt during the second quarter.

Hedge funds headed for the exit on big-name pot stocks in Q2

Following the end of every quarter, money management firms with more than $100 million in assets under management have 45 days to file Form 13F with the Securities and Exchange Commission, which details their holdings at the end of the previous quarter. These filings are used by Wall Street professionals and retail investors alike to find out what the brightest investment minds have been up to over the previous couple of months. Even though they’re not perfect — after all, you’re being shown holdings that are 45 days old and likely may have changed — 13Fs are a great way to identify industry, sector, and innovative trends that are gaining or losing steam.

According to data found on 13F aggregator WhaleWisdom.com, while institutional investors as a whole added to their positions in the Big Three, hedge funds, which are essentially more aggressively managed investment portfolios, couldn’t get to the exit quick enough. During the second quarter, hedge funds reduced their positions in:

  • Aurora Cannabis by 67%
  • Canopy Growth by 32%
  • Cronos Group by 30%

In aggregate, Aurora saw hedge fund ownership reduced by more than 10 million shares, with Canopy Growth and Cronos Group seeing a reduction of more than 1.1 million shares and nearly 1.2 million shares, respectively…

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