Originally published on InvestmentNews.com
by Jeff Benjamin
11/2/10
Legalizing joints could lead to fewer inmates in the joint, says Rady; jail operator’s share price at 52-week high
Today’s vote on legalizing marijuana use in California has triggered the aggressive short sale of the operator of a private correctional facility where up to 30% of the prisoners are incarcerated on marijuana-related crimes.
By shorting Corrections Corporation of America (
The stock, at more than $26 per share, is trading at a 52-week high and has gained 44% since falling to around $19 in March.
Technical analysis also shows resistance to a bearish turn for the stock.
Last month, the stock’s 50-day moving-average price crossed above its 200-day moving average in a “golden cross” move that is considered to be a bullish indicator.
Mr. Rady, who manages $270 million as chief executive of Rady Asset Management LLC, is betting on the passage of Proposition 19, which would legalize marijuana cultivation and possession for personal use, and allow for taxation by local governments.
The impact of legalized marijuana on a company such as CCA could be immediate, he said.
“The prisons are so overcrowded that it would be a very compelling reason to let those prisoners out of jail for marijuana-related crimes,” Mr. Rady said. “If I’m wrong, the stock is already trading at its 52-week high and probably doesn’t go up on the news, but if I’m right, look out below.”
Polls leading up to today’s vote had opposition to legalized pot in California outweighing support, 51% to 39%.
But Mr. Rady’s case for shorting the stock is also bolstered by a hunch that the company’s earnings report Wednesday could come in below analysts’ estimates of 37 cents per share, which is up from 33 cents a year ago.
- Source: http://www.investmentnews.com/article/20101102/FREE/101109986
