You should be very careful when doing that. It may be rare in practice, but it's surprisingly easy to trigger ABA issues with only a 16-bit sequence number.
That said, it's better to rely on RCU/hazptr to solve ABA issues, but the extra bits are still useful to store state that can be CAS'd together with the pointer.
But yes, it is definitely something to be aware of!
BTW, if the pointers are always aligned, the sequence number may have a few bits more.