Emblem Corp - Short players double down, borrowing and dumping nearly 500,000 more shares (EMC.V - EMMBF)

Short interest for EMC.V was just updated, current to January 15th 2016 and that number climbed an additional 496,900 shares to a new total of 952,900...

Again that's only current to January 15th and does not include any activity over the past three days of trading.  That means it is conceivable that the number could be even higher now.

Why would short players increase the size of their bet, more than doubling the previously reported number of shares borrowed and dumped back into the market from the January 15th update of 456,000?  I think the answer is fairly obvious, nobody likes to lose.

Retail investors are notorious for being price sensitive, viewing a rising share price as strength and a falling price as weakness.  Up is good and down is bad.  Its the inverse of what happens when people go shopping for things like groceries.  

My local store puts instant coffee on special every so often, selling it for a discounted price of $2 per jar as opposed to the regular price of $6 or so.  When I see the price drop to $2 do you think I take the jar in my cupboard that I paid $6 for and rush out and try to sell it?  Of course not. Instead I buy 10 jars at the lower price, confident in the knowledge that in another week's time the cost will be back at $6. 

The key word there is "confident".  I know with almost 100% certainty that the price of my coffee is going to return to $6.  When it comes to stocks however, retail investors typically lack that degree of confidence.  And players on the short side can impact what confidence long investors have by borrowing a significant quantity of shares and dumping them back into the market to depress the share price.  Their hope is that shareholders will get scared:  "The price is falling, things must be bad".

Should Emblem Investors be confident?  I think so, but as a shareholder my views are biased and should be viewed in that light.  

Obviously everyone is forecasting the Canadian Marijuana space to be an absolute monster in the years to come with overall revenues forecast to be in excess of $20 billion according to a recent study conducted by Deloitte.  (TorStar Article). 

Emblem specifically has an incredibly talented executive team leading it, arguably the strongest in the entire sector, with luminaries such as John Stewart formerly of Purdue Pharma heading up the pharmaceutical side of the business.  I don't think there's another player in this space with experience running a billion dollar company.

But that doesn't mean there aren't risks.  

The market is going to be highly competitive, with more and more licensed companies fighting over market share.  And there's always the chance that the Justin Trudeau government could back off on their pledge to bring forward their plan for legalized recreational weed, expected this April.  Given the poor state of Ottawa's balance sheet I don't consider that to be likely, however I have to acknowledge that it is a possibility.

Suffice to say there are risks, and risk can lead to uncertainty which causes fear and doubt.  And short players can exploit that fear by borrowing significant quantities of shares and reselling them into the market in order to lower the price of the stock.  

I won't belabour the point further, obviously those players on the short side have shown that they're willing to step up and increase the size of their overall position.  And I have no delusions that this miserable and pathetic little blog will rally retail longs to defend the PPS by holding and possibly even buying more.  

Taking out a sizeable short position takes a big bankroll because of margin and maintenance requirements.  What's that old expression:  "In for a penny, in for a pound".  In the weeks and even months ahead I will not be surprised if short side players up their bets even higher.  Only time will tell if it works.

If you watch social media expect to see the number of posters confidently proclaiming Emblem to be overvalued to increase.  With almost 1 million shares borrowed and sold bears will need investors convinced they overpaid and that selling would be a prudent move.

If you missed my first post on the short situation with Emblem you can read it here: 

Emblem Corp - Short Interest hits almost 500,000

I will leave you with an old video I've shared on here a number of times before.  Its Jim Cramer of Mad Money fame talking about the strategies he would use when he was "position short" to influence the sentiment of "moron longs" who fixate on price price price.

Its a dirty little game in the public markets, and knowing the ploys of the bigger players can help retailers make better decisions in my view.  Good luck, comments are welcomed as always but no profanity please.

Emblem Corp - Over or undervalued? (EMC.V - EMMBF)

That's the central question for any stock isn't it?  Is it under or overvalued.  It doesn't matter whether its an OTC stock trading for a single penny, or a NYSE listed company trading for $100 or more.  

If you get it right you can make money, get it wrong and you lose.  And you can make money both ways.  If you think a stock is under priced you can go long, or if you think the price is too high you can borrow shares and dump them back into the market going short.  

I've written many times on this blog that trying to assign a value to a speculative stock is pretty much a mug's game.  There are stocks out there right now that have been around 20 years or more that have histories of nothing but failure, but their market caps are in the hundreds of millions, sometimes billions. How can that be?  Simple, there are more people buying than there are selling.

Stocks don't trade on fundamentals, they trade on sentiment.  

Emblem is now trading around $4.20 CDN or $3.20 USD.  That is the result of the levels of buy side interest and sell side supply to date.  Determining whether or not the PPS will rise or fall going forward will depend on how many buyers and sellers there are in the days, weeks and months ahead.

I very much like the chances for Emblem to increase in value from current levels, however as a shareholder in the company my opinions should be considered as extremely biased.  Of course I will explain my reasons for being bullish.

Emblem stormed onto the market with trading starting on December 12th 2016.  Activity that first day was robust to say the least, with over 7.3 million shares trading hands on the TSX venture exchange. While market commentators had anticipated an opening PPS of around $1.50 to $2.00 CDN the stock opened at $2.99, double the low end projection.  The PPS closed at $3.30 that first day, and traded as high as $3.98.  There was no trading on the US side as the OTC listing didn't come until later.

Why was there so much interest in Emblem?

It goes almost without saying that Cannabis stocks have been on fire.  But beyond the overall spotlight in the wider marijuana sector, Emblem had already attracted a lot of attention even before being a public company.  There were write ups in Canada's national newspaper The Globe and Mail, Huffington Post did a piece, even the BBC had an article about Emblem.  

If you missed it here's a sampling of some of those early articles.

http://www.theglobeandmail.com/news/national/leadership-behind-canadian-medical-marijuana-company-has-an-oxycontin-past/article33200287/

http://www.cantechletter.com/2016/12/emblem-cannabis-corp-will-soon-one-canadas-leading-producers-says-pi/

http://www.wealthdaily.com/articles/emblem-cannabis-to-be-biggest-cannabis-ipo-of-2016/8445

http://www.huffingtonpost.ca/madaline-zanni/licensed-cannabis-producer-canada_b_12365080.html

http://www.bbc.com/news/world-us-canada-38083737

That's a lot of attention before even one share had traded hands in the public markets.  I myself was alerted to Emblem's IPO by a newsletter service from a promotional outfit called Microcapresearch.  

No wonder demand and volume were so high on day one.  I had set aside funds specifically for EMC, but seeing it open around double the price I was expecting I decided to only invest one third of the money I'd earmarked.  I saw the potential for it to go either way, up or down.  I wanted a position if it kept climbing, but I also wanted some money available if the price moved lower.

As it turned out the PPS moved markedly lower.  Over the first four days of trading on the Venture Exchange short sellers borrowed almost half a million shares and dumped them back into the market. That kind of activity is bound to have a negative impact on the price, and it did.  By the 19th of December the PPS got as low as $2.52 and I was able to add to my position at $2.80 and lower my cost average substantially.

So now the PPS sits over $4 Canadian and the trading has cooled off significantly.  After that first day with over 7.3 million trading the volumes have only topped one million three times.  The last time volume crested the million mark on the Canadian side was on the first day of trading in 2017, January 3rd when a little over 1.1 million shares were bought and sold.  On the U.S. OTC side volumes are even lighter, there hasn't even been a day of 100K trading in calendar 2017 for EMMBF.

Short sellers took their foot off the gas pedal it seems.  After borrowing and dumping 483,200 shares in the first four days of trading up to December 15th 2016, the number actually dropped to 456,000 up to December 31st 2016.  During the first four days of trading the PPS never once dipped below $3 so I think its reasonable to expect that there are some angry bears out there right now.

Short sellers are not stupid, but that doesn't mean they're always right either.  Seeing short selling cool off is a positive sign in my opinion.  If bears had continued raiding the stock and dumping shares it obviously would have impacted the price by making more shares available for sale.  I strongly suspect that there are a lot of eyes on Emblem right now, with many thinking (or hoping) that the PPS will give back some and allow them to buy in cheaper.

Going forward I see the potential for Emblem to attract even more attention.  I haven't seen any promotional outfits hyping the company since that first email I received from Microcapresearch.  But with so much free publicity I don't think the company needs to be doing much to attract attention.

Reddit users may already be aware of a Cannabis Conference coming up at the end of January in British Columbia.  Here's a link to the post on that site:

https://www.reddit.com/r/weedstocks/comments/5m3u59/canaccord_genuity_cannabis_conference_jan_26/?st=ixq972n4&sh=cf90487f

EMC has been able to sustain a price of $4+ CDN on much lighter volume than was experienced when trading first started.  With the above noted conference, in which Emblem's Stewart is named as a keynote speaker, and with Canada due to outline the path forward to the legalization of recreational weed in April I see the potential for this level of demand to at least be sustained with a distinct possibility of it even increasing.

The one caveat I will toss out there is the possibility of a bear raid.  Short sellers could attack Emblem, borrowing more shares and dumping them into the market as they did during the first four days.  It is this possibility that has kept me from investing the final 3rd of the money I'd set aside for Emblem.  If I sense a bear attack aimed at taking the price down I fully intend to take advantage the same way I did with my second buy.

Good luck all....please read the disclaimer at the very bottom of this site and feel free to comment, just no profanity please.  

Emblem Corp - Short interest hits almost 500,000 (EMC.V / EMMBF)

EMC has only been trading for seven calendar days, and the updated figure for short interest is only current up to December 15th 2016, so it includes just four days of trading.  The number current to that date was 483,200 and now with three more days of trading in the books it may very well be higher, and in point of fact I expect that it is higher.  

Regular readers of this miserable and pathetic little blog (I think I might be up to 4 now) know I don't give fundamental data a lot of weight, figuring it to be already 'priced in' to a stock's valuation. The reason is because most fundamental data is typically weeks, and often months old. Short interest on the other hand is much more recent, in this case its only 3 days old.  

Short interest is the one fundamental metric I follow closely because it gets right to the nuts and bolts of the market.  A stock price is determined by the laws of supply and demand, and short sellers artificially increase the available supply by borrowing shares from shareholders and then re-selling them into the market.    

One point I wish to make abundantly clear, short selling is legitimate market activity and I don't view bears as evil or anything of that sort.  Market players can look at a stock and reach the conclusion that, in their opinion, the stock is overvalued.  Expecting the price to fall they can borrow shares from the brokerages of shareholders who have margin accounts and sell them.  The goal is to buy the shares back lower, thus pocketing the difference and booking a gain.  

Longs of course do the opposite, when an investor reaches the determination, in their opinion, that a stock has potential to rise in value, then he or she can purchase shares in the hopes of selling them at some later date for a higher price than what was paid.

Pretty basic stuff.

Naturally it comes down to how many shares are being bought versus how many are being made available for sale, that's what determines the direction of the share price.  And both bulls and bears have the ability to influence the market.  When bulls storm in and buy, if they overwhelm the amount of shares available, then the price rises.  Conversely if bears are making more shares available than buyers are looking to purchase, then the price falls.

Emblem started trading on December 12th, and while market commentators were expecting it to open around $1.50 to $2 per share, instead the level of buy side interest sent the PPS up as high as $3.98 that first day on volume of over 7.3 million shares trading.

Naturally some felt that valuation was inflated, and as should be expected some obviously decided to try and profit by going short.  In just 4 days of trading almost half a million shares were borrowed and sold into the market, and based on the trading its reasonable to expect that most (if not all) of the borrowed shares were sold for more than $3 per.

Now comes the fun part.

As things currently stand short players are sitting on paper gains.  The current PPS is $2.77 and if we assume (pulling a number out of my nether regions) that shorts sold at an average of $3.27 to keep the math easy and rounding up to 500,000 as the short figure....that's a paper gain of $250K.

Not too shabby.

But here's the rub.  In order to turn those paper gains into capital gains short sellers need share holders willing to sell for $2.77 in order for them to cover.  Its the same as a long buying 500,000 of a stock at $2.77 and watching it climb to $3.27.  The long in this case has a paper gain of $250K but he can only turn it into a capital gain if he is able to find buyers willing to pay the higher price.  

Isn't the market fun?

Bears have done well, on paper, but if buying back on the cover causes the PPS to climb its possible that paper gains could turn into paper losses.  Its the same as a long buying a stock at $2.77 and then trying to sell at $3.27, if that selling leads to too much supply and a falling PPS then paper gains could turn into losses.

The thing to understand is that stocks trade on sentiment.  This is important so I'm going to repeat it, stocks trade on sentiment.  A lot of novice retail investors think that there is some magical formula or slide rule to determine whether a stock is under or overvalued.  Good luck with that.  

A lot of investors looked at a company like Tesla and saw its shares trading for $30 or $40 in 2012 and thought it was grossly overvalued.  After all the company was new and had never made a dime in profit, Tesla was bleeding cash to the tune of hundreds of millions per year.  On top of that they were issuing SEC filings saying that their previous filings for earlier years could not be relied upon because of accounting errors.  

Sounds like a short sellers wet dream doesn't it?  Hundreds of millions in losses, dilution on top of dilution, accounting irregularities.  It would be hard to argue with someone presenting the bear case on Tesla back in 2012.  But those fundamental negatives were trumped by bullish sentiment and TSLA took off trading for $100, $200 almost $300 per share in subsequent years.  And now TSLA has finally started to report profits.  Will those profits be enough to sustain the current $200 or so PPS?   That's up to the market to decide, and the primary factor will be sentiment.

But let's get back to Emblem Corp.  Right now its worth $2.77 CDN.  Is that overvalued or undervalued?  

That will depend on market sentiment going forward.  I took out a small long position on the first day of trading, because I saw (and still see) the potential for EMC to attract a lot of buy side interest. I only invested about one third of the capital I had set aside for Emblem however, because I could see it going either way after its incredibly strong opening.  

So far it has moved down from that opening day euphoria, which isn't a shock, but I also saw the potential for increased buy side interest from media mentions and the OTCBB listing, but as of yet that hasn't panned out.  With that being said I am not shying away from my $7 target by April when the Government of Canada is set to announce how its proceeding with the legalization of weed in this country.

Some interesting news has come out as well recently, with the company now authorized to produce Cannabis oils.  Oils derived from Cannabis are said to have a number of positive health benefits, and are an ingredient in some new energy drinks.  I'm invested in one such company and have written about Rocky Mountain High Brand 'Hemp Infused' drinks on here a couple times after opening a position in RMHB at .031 cents USD on the OTCQB.

http://www.avoidthebag.com/2016/10/hemp-infused-beverages-intriguing-idea.html

I am very bullish on EMC as a long term investment, given the management team and the expanding market.  Short term though anything can happen.  If bears continue borrowing shares and selling them the PPS could continue dropping.  

For those concerned with their shares being loaned out there are some things you can do, although personally I don't think it matters much because in my opinion there will still be plenty of shares available in margin accounts.  But shares held in registered accounts for TFSAs and RSPs, those shares are not available to short players.  Additionally putting a sell order in means they can't be loaned out either, although that's something you need to keep an eye on if your intention is to hold for the long term as your PPS could be hit if the stock starts to climb.

Anyway that's enough for now.  Good luck and realize that because of my long position my views are obviously biased.  Verify all information, while I try to ensure the accuracy of what I share I can make no assurances, mistakes can happen.

Cheers

Will Emblem Corp follow Lithium X Energy's trajectory? (EMC.V)

What does a Junior Lithium mining company have to do with a producer of Medical Marijuana? 

Generally speaking, practically nothing.  But when it comes to comparing shares of LIX.V with shares of EMC.V I think the similarities will show up in the weeks and months ahead.  

In educational circles its called applied learning, taking knowledge acquired from one area and applying it to another.  In this case I'm taking the lesson of the surge in Lithium Stocks and applying it to the MMPR space.  Specifically I'm taking what I learned about the trading in LIX.V and postulating that it may very well serve as a guide about what to expect for trading in EMC.V.  

Lithium X started trading on November 30th 2015 and opened at 30 cents per share.  After forming a solid base around 40 cents and trading in that area until mid January the PPS took off.  By April of 2015, just 4 months after opening at 30 cents, the PPS was trading over $2.50

Oh to have a time machine eh!  Here's a chart that covers that first five and a half months of trading in LIX.V

I didn't jump into LIX.V because I thought the Lithium buzz was pretty much done.  I banked some very nice profits on Lithium stocks like Nemaska, Lithium Americas and even Durango, but I stayed away from LIX.V because at that time they looked, (to me) to be getting too much promotion and all the hype that goes along with it.  

Live and learn.  Investors loved the Lithium X story and in particular the history of their management team.  

The lithium buzz in general and the Lithium X story in particular, was too hard to resist and LIX.V took off.  Stocks, as I have often written here, are more about psychology than anything fundamental. If I could go back and invest in LIX.V for 40 cents I would, obviously.

But wait.  Maybe I do have a chance to do it over again.  But instead of with a Jr Lithium miner I can do it with a newly minted Medical Marijuana company, Emblem Corp, which just started trading under the symbol EMC.V

A big part of the reason Lithium X Energy took off in my opinion was because investor's liked the track record of their management team, which had (and has) a wealth of experience in the mining sector.  Executives whose histories include established and successful companies like Potash One and Albemarle obviously give a level of comfort. 

Emerald has a similar narrative with their executive team.

Notably John Stewart, who used to run Purdue Pharma, the privately held pharmaceutical giant best known for pain medications like OxyContin.  And Harvey Shapiro a former CEO of Dynacare Inc which was acquired by Laboratory Corp of America Holdings in 2002.

Like the Lithium buzz that sent many Jr Miners soaring with gains of several hundred percent and sometime over 1,000%, medical marijuana is equally hot right now.  And I believe that Emblem may very well be coming to the market at an incredibly opportune time, just as LIX.V did in November of 2015.  

In fact the timing may be even better.  Not only is the MMPR space hot right now, but the overall markets have been in full bull mode since the U.S. presidential election.

Shares of EMC.V were expected to open somewhere around $1.50 but when I finally was able to pull up a quote this morning the PPS was already up around $3.  And while I think that price is reasonable and has a lot of upside potential, with the hype surrounding MMPR in general and EMC.V in particular, I have decided to hold off in anticipation of some volatility.

Why do I think there's a lot more upside, even at $3+?

Sticking with Lithium X Energy as my point of comparison, I think Emblem can attract even more attention because of all the news around Marijuana right now.  Yes Lithium got some attention in the media, but nothing compared to all the stories coming out about legalization right now.  And I think Emblem's path to revenues and profitability could be much shorter. 

Lithium X Energy, over a year after going public, is still in the development stage, they haven't yet reached production.  In fact they still haven't published a feasibility study on their proposed mine in Argentina.  I'm not pointing that out to be negative, its merely a fact of the mining game, it takes years to bring a proposed mine to production, and many fail.  That hasn't stopped Lithium X from raising capital however as investors continue to believe in the company as evidenced by their market capitalization of roughly $130 million Canadian.

Emblem by contrast already has their license form Health Canada and was recently written about by Huffngton Post Canada:  

An Inside Look At One Of Canada's New Licensed Cannabis Producers

Add in the fact that the rules around legalization for recreational use are expected in Canada this spring and I believe there is a recipe here for what may turn out to be a perfect storm.  

I could write reams and reams more on the reasons for my bullish opinion and why I'm looking to take out a long position, but I'll leave readers to do their own research and further due diligence if they're sufficiently intrigued.  

I will note that Emblem hit my radar via a promotional email, the same type of promotion that caused me to stay away from Lithium X Energy.  Again, live and learn.  Some promotion with development stage companies is to be expected of course, and I will be watching to see if Emblem "jumps the shark" in my estimation by going overboard.

Despite my bullish opinion please understand there are always risks, and as someone looking at taking out a long position my opinions are obviously biased. Small and microcap companies fall into that high risk category and are not suitable vehicles for everyone, there is every possibility that investors could lose some or all of the money they put at risk.  I strongly advise consulting with an investment professional to determine if EMC.V is suitable considering both investment objectives and tolerance for risk.

Comments are always welcome and good luck.