North American Cannabis Holdings Short Sale Speculation
North American Cannabis Holdings, Inc. (USMJ) announced a potential short squeeze on Friday, November 11, 2016 based on a report from the OTC Short Report indicating approximately 4 billion shares have been sold short in the last 30 days. The Squeeze Report reports a short position in USMJ consistent with the OTC Short Report. With more than one short tracking organization putting USMJ on top of a Most Shorted List, their might be something to it.
We have received emails complaining about message board posters reporting that short sale reports are a scam and asking us to clarify the situation. Some claim stock shorting doesn’t exist. Other’s claim it’s over reported. Yet others believe in a short sale conspiracy.
Considering that the SEC does institute short sale regulations, we are of the opinion short selling does exist. Given the market maker exemptions from short sale regulations, we are of the opinion its under reported.
In regard to how USMJ might have garnered a ‘short-position’ the magnitude of what is being reported by multiple short tracking organizations, and why now a “is-USMJ-short-or-not-debate-has-heated-up-on-stock-message-boards,” we have a speculative three-part answer:
1. USMJ has certainly issued a great number of shares in the last two years servicing various debts. It is our belief that short sellers anticipate such dilution and sell short in anticipation of acquiring cheaper newly issued shares. Such short selling makes the apparent sell-volume look even worse than it is since there is one sale for the short sale and a second sale of the newly issued stock that covers the short sale. The artificial doubling of sell-volume has a negative impact on the PPS. The lower the PPS, the more stock must be issued to service debt and the faster the I/O grows.
2. USMJ has made a healthy dent in its reported debt over the last two years and in turn the Company has had the ability to slow down stock issuances to service debt. However, given that our speculation on short sellers selling short in front of anticipated new issuances might be correct, it is possible that short sellers over estimated how much new stock might be issued and are now having difficulty buying cheap shares to cover their short sales.
3. And this one is interesting … the dividend of PURA stock to USMJ shareholders could have short sellers in a very tough spot.
“If a company pays a dividend to shareholders, the second investor who bought the shares from the short seller would get the dividend check from the company. But because the original investor is no longer a shareholder of record (because the second investor owns those shares now), then the short seller must pay the dividend out of his or her own pocket” (Investopedia).
Now further consider that Squeeze Report indicates that at the time of the dividend declaration on October 21, 2016 there may have been over 1 billion shares short. That would mean there is no dividend allocated for issuance for over 1 billion shares and the sellers of those 1 billion shares will have to purchase PURA stock to make up for the dividend shortage.
The Sum Total of the Three Part Answer
Short sellers may have overestimated ongoing new stock issuance and sold more short than they could easily cover through the purchase of newly issued cheap shares. Two, at risk of having to purchase PURA stock, short sellers maybe trying to shake the confidence of those that purchased shares from a short seller in hopes that those that purchased shares from a short seller will liquidate their USMJ position prior to a dividend payment.
How This All Might Look on the Message Boards
We suspect that no one posting on a message board is doing so for altruistic reasons. Posters either want to see a PPS go up so they can profit or see the PPS go down so they can profit. More power to everyone making money. But please consider the motivation of a poster before considering some anonymous poster as an authority on why a PPS will increase or decrease. If the poster is stating all is rosy and the PPS is going up, that poster probably stands to profit form and increased PPS. Likewise, if a poster is stating that “something is not right in the state of Denmark” and the PPS is set to plummet, that poster probably stands to profit from a decreased PPS.
The opinion stated here on short selling and how it may be impacting the USMJ PPS is just another opinion. It may or may not be of value, but we did not want to ignore the questions being received by the Company in regard to the short debate and hope this communication might at least be some food for thought in coming to your own decisions in regard to your investment in USMJ.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward looking statements relate to, amongst other things, current expectation of the business environment in which the company operates, potential future performance, projections of future performance and the perceived opportunities in the market. The company's actual performance, results and achievements may differ materially from the expressed or implied in such forward-looking statements as a result of a wide range of factors.