Short-sellers have to be really pessimistic about a stock's prospects. After all, they have to first borrow someone else's shares. Then they sell those shares, banking on the stock price falling so that when it comes time to pay up, their cost is well below their selling price.

Three marijuana stocks that some investors are the most pessimistic about are Insys Therapeutics (NASDAQ:INSY), Cara Therapeutics (NASDAQ:CARA), and Corbus Pharmaceuticals (NASDAQ:CRBP). But are the naysayers wrong in betting against these stocks?

Group of people with thumbs down

Image source: Getty Images.

1. Cara Therapeutics

Over 22% of Cara Therapeutics' outstanding shares are currently sold short. That's a whole lot of pessimism for a stock that was a highflier a year ago. Is Cara a marijuana stock, though? Sort of. The biotech is often categorized as a marijuana stock because it has a cannabinoid-receptor agonist, CR701, in preclinical development.

Cara's lead candidate is an intravenous (IV) version of kappa opioid receptor agonist CR845. The biotech should have results from a late-stage study evaluating the drug in treating post-operative pain in patients undergoing abdominal surgery in the second quarter of 2018. The high level of Cara shares sold short means that there's some big money riding on disappointing results from that study.

Some of the negativity no doubt hinges on a phase 2b failure last year for CR845 in treating pain. However, that setback was for the oral version of the drug. Results from phase 2 studies evaluating IV CR845 were positive. 

At this point, there's no way to know for sure how Cara's late-stage pain study will turn out. I'm cautiously optimistic, and definitely wouldn't bet against the biotech. And over the longer run, I think Cara could have solid prospects in treating chronic kidney disease-associated pruritis (CKD-aP). 

2. Insys Therapeutics

There is plenty of pessimism about Insys Therapeutics' prospects also. Over 16% of the biotech's outstanding shares are sold short. For much of 2018 so far, that pessimism has paid off: Insys stock is down over 35% year to date.

The negativity over Insys stems from several fronts. Insys' biggest moneymaker right now is an opioid drug, Subsys. Sales for Subsys have plummeted, due primarily to the opioid epidemic in the U.S. Insys is also the subject of a federal investigation into its past marketing practices for the drug. While Insys does have a new cannabinoid drug on the market, Syndros, the commercial launch of the drug has been slow. 

Insys CEO Saeed Motahari added some fuel to the fire for short-sellers with his comments in the company's Q4 conference call. He said that the market decline for TIRF (transmucosal immediate-release fentanyl) drugs -- which include Subsys -- has been greater than expected so far this year. Previously, Motahari had expressed optimism that the TIRF market would stabilize in 2018. 

What could lead to a rebound for Insys? A favorable settlement with the U.S. Department of Justice (DOJ) would help remove a major dark cloud hanging over the company. Stabilization of Subsys revenue would also be a positive sign. My view is that Insys could be a "bad news buy" for investors -- but only those who have a long-term perspective, since it could still be a while before there's a settlement with the DOJ or stabilization in the TIRF market. 

3. Corbus Pharmaceuticals

Corbus Pharmaceuticals, like Cara Therapeutics, can only loosely be referred to as a marijuana stock. The biotech is categorized as such by some because its lead pipeline candidate, lenabasum (formerly known as anabasum), is a synthetic selective cannabinoid receptor type 2 (CB2) agonist. Around 15% of Corbus' outstanding shares are currently sold short.

Both 2017 and 2018 thus far have been roller-coaster rides for Corbus shareholders. There have been multiple swings of 20% or more. Right now, Corbus is yet again on a downswing, with its share price dropping nearly 40% since late January.

The biotech's fortunes rest entirely on lenabasum. Corbus is evaluating the drug as a potential treatment for four indications -- systemic sclerosis, cystic fibrosis, dermatomyositis, and systemic lupus erythematosus (SLE). Lenabasum is farthest along in the systemic sclerosis indication, with a late-stage clinical study in progress. 

There are a couple of potential catalysts on the way that might send short-sellers scrambling for the hills. Corbus expects to announce results from phase 2 open-label extension studies targeting system sclerosis and dermatomyositis by mid-2018. However, the jury is still out on lenabasum, and these studies are less likely to provide a boost for the stock than the late-stage systemic sclerosis study could. Results from that study won't be available until 2020.

Who wasn't on the list

You might have noticed that no Canadian marijuana stock made the list. For the most part, short-sellers appear to be staying clear of those stocks. It's not hard to figure out why.

Canada appears to be on track to legalize recreational marijuana by September 2018. Demand is expected to be very high, so sales for all marijuana growers entering the recreational market should soar. The Canadian marijuana stocks might still be risky over the long run, but most of them don't appear to be risky enough yet for short-sellers to bet against them.