Short selling activity in the cannabis sector has risen throughout this year, bringing the total amount bet against a portfolio of 150 U.S. and Canadian cannabis stocks and ETFs to $5.1 billion by the end of July, according to S3 Partners.

Over 84% of this short interest is concentrated in just 20 stocks, and these stocks have seen short interest increase by $1.89 billion or 78.32% so far in 2019.

Pot stocks have suffered steep falls from their 2019 highs due to regulatory concerns, weak earnings and scandals. This meant the top 20 most-shorted cannabis stocks netted short sellers $735 million in mark-to-market profits last month, reducing their year-to-date losses to $690 million, according to the financial technology and analytics company.

This has "emboldened" bears targeting the sector, according to the report. Canopy Growth Corp. (CGC), whose shares are down 22% in the last month, saw its short interest grow by $69.6 million in July. It was followed by GW Pharma plc (GWPH) and Aurora Cannabis Inc. (ACB), which saw short interest increases of $59.5 million and $47.6 million during the same period. On the other hand, Aphria Inc. (APHA) and Tilray Inc. (TLRY) have seen the greatest decreases in short interest, with short covering of $23.6 million and $18 million in July, respectively.

"Even though shorts have not had a stellar year so far in 2019, the rally we saw in cannabis stocks from late 2017 through 2018 has short sellers jonesing for a price reversal in the sector," said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. "Neither the excessive price volatility relative to the overall market nor high financing costs is deterring shorts from building and holding onto their positions and single name short squeezes do not look to be in any of these top 20 stocks’ near-term future."

Dusaniwsky highlighted the relatively high stock borrow financing costs in the sector. He said, "The average cost to borrow a stock in the U.S./Canadian market is 0.80% fee versus 16.75% fee in the cannabis sector." Some of the most expensive stock borrows are Tilray (41.32% fee), Aphria (41.12% fee), Aurora Cannabis (26.12% fee) and Canopy Growth (25.87% fee).