What is Short Selling?
Short selling is selling a security (stock) with the intention of buying it back later for a profit. A short seller benefits by selling a stock to open its position in the market, and then, repurchasing it if and when its price drops.
The main motivation for short selling is, of course, profit. The strategy can be used due to speculation or by the desire to hedge risks associated with investing in the same stock long-term.
The danger of short selling is that, in theory, the potential loss of investment capital is unlimited. Most short sellers borrow the securities they sell. The owner of the stocks acts as a broker in this investment structure and receives interest on the loaned securities rather the short seller profits or not.
Of course, the broker is not going to lend the securities without collateral, meaning the only loss that can occur will occur to the short seller and not the broker. Short sellers are typically experienced traders with adequate assets available to sustain a calculated loss.
Protecting Your Cannabis Business from Short Sellers
As the industry continues booming in the US and the world, some public marijuana companies are experiencing high trading volumes and high share-price volatility. These factors make startup cannabis businesses prime targets for short selling vultures who do not care about personal investments. In fact, they are hoping for both the companies that finance marijuana businesses and their clients to go bust!
According to Viridian CEO, Scott Greiper, there is no known foolproof way to keep your company fully protected from short selling. However, he does advise that the following can help to minimize it:
- Quickly disclose bad news like failure to meet intended profit margins
- Keep a clearly visible “Investors” section on your company website
- Do not overpromote or release “fluffy” company news
- Hire a professional corporate communications team
- Maintain full transparency with your investors
While there may be no way to completely stop short sellers from affecting your startup cannabis business’s profits and growth, remaining transparent and staying ahead of bad news can go a long way to help. There will always be fissures and leaks in any economic structuring. Stick to your business plan and short selling will probably not affect your company in any serious way.
Contact the savvy pros at Startup Cannabis Loans by applying heretoday to discuss your options for cannabis business loans, hemp business loans, getting start up capital for marijuana dispensary, or other types of weed loans. We are here to keep you on top of the industry myths and get you the cannabis funding you need. References Marijuana Business Daily - Ways for marijuana firms to protect their stocks from short sellers Investopedia - Short Selling