Shares of cannabis specialist Akanda (NASDAQ:AKAN) skyrocketed 200% this morning before significantly paring back gains. With AKAN stock still up more than 60% this afternoon, though, today’s move remains impressive.
Why are shares on the rise? Today, the U.S. Food and Drug Administration (FDA) called for a new regulatory framework for cannabidiol (CBD). AKAN stock may also be the subject of risky speculation.
Based in the United Kingdom, Akanda bills itself as “Europe’s premium cannabis cultivator.” Specifically, it deploys a seed-to-patient business model, which involves manufacturing high-quality medical cannabis and wellness products and delivering them via networks of “prescribing doctors, digital pain clinics and distribution partners.” Akanda also owns the “only commercial scale premium indoor EU GMP certified and licensed grow in Portugal.” GMP stands for “good manufacturing practice.”
As an international cannabis firm, the FDA’s announcement carries some significant implications for Akanda. According to the U.S. Drug Enforcement Administration (DEA), marijuana is a Schedule I drug. That means it features “no currently accepted medical use and a high potential for abuse.” However, the U.S. Department of Agriculture (USDA) has also stated the following about hemp:
“Hemp is defined under the 2018 Farm Bill to include any cannabis plant, or derivative thereof, that contains not more than 0.3 percent delta-9 tetrahydrocannabinol (‘THC’) on a dry-weight basis.”
Technically, then, CBD can fall under the hemp exemption. However, Consumer Reports notes that the “legality of shipping CBD across state lines is ambiguous.” As a result, the FDA’s proposed creation of a new framework should provide some legal clarity for hemp and CBD. That, in turn, could bolster AKAN stock.
Speculation Builds for AKAN Stock
The FDA’s announcement may have interpretative value among the bulls. However, AKAN stock could also be benefitting from speculative interest today. Data from Fintel notes that Akanda’s float stands at only 8.36 million shares as of Jan. 25. Subtracting out the short interest, the float comes to 7.94 million shares.
For the midweek session, the short interest for AKAN stock pings at 5.07% of float. Additionally, the short interest ratio sits at 0.08 day to cover. Definitions vary about what constitutes “high” short interest as a percentage of float. Investopedia notes that anything above 20% may be deemed greater than normal.
Under that definition, AKAN stock doesn’t appear to be a likely short squeeze candidate. However, that’s not the end of the story.
According to Fintel, the number of shares of AKAN stock available to be shorted at a leading prime brokerage experienced volatility. At one point yesterday, the company’s short shares availability metric stood at 200,000. Earlier today, though, that figure dipped to just 1,000, then spiked back up to 85,000. As of this writing, the metric sits at zero.
As a result, the short borrow fee here — which was already incredibly high — has increased conspicuously. Yesterday, the borrow fee stood at 125.44. At the start of this morning’s session, it bounced up to 151.79 before declining back to the 120 level.
Why It Matters
Although the wild variability in the shares available for shorting here could seem like an opportunity for AKAN stock, equities analyst Robbert Manders may beg to differ. Specifically calling out high-risk cannabis stocks, Manders recently warned investors that “many stocks with annual short fees over 50% are struggling micro caps with negative momentum.”
AKAN stock may look exciting right now, but investors be warned. After all, shares are still down more than 95% from their public debut.
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On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.