285
Investopedia is a great source to learn more about warrants and “gearing is the ratio of the share price to the warrant premium, and it reflects how much the price of the warrant changes for a given change in the stock. The higher the gearing, the more valuable the warrant”.
Using CBW warrants, we can illustrate this concept and the potential ROI of investing in warrants. In this example, let’s assume that an investor forecasts that the share price of CBW will regain its 52-week high of $2.00 before the warrants expire. The investor has $20,000 to invest. Ignoring brokerage fees, the investor can purchase 20,202 shares or 148,148 warrants. At the current prices, the gearing ratio is 7.33 ($0.99 share price divided by $0.135 warrant price).
What happens when the share price reaches the strike price of $1.50? The investment in shares is worth $30,303 for a 51.5% ROI. The investor would not exercise the warrants at this price since the all in cost would be $1.635 ($1.50 strike price + $0.135 warrant price).
Many variables will affect the price of warrant including time left to expiry but let’s assume there is ample time and the warrant price also increases by $0.51 to $0.645. The investment in warrants would be valued at $95,555.46.
If the share price reached say $2.00 the investment in shares would have an ROI of 102% and the investment in warrants an ROI of 848% assuming the price of the warrant also increased by a total of $1.01.
The downside of course is that warrants do expire and when they do they no longer exist ($0.00 value). Other downsides include holders of warrants do not have the rights or privileges associated with share ownership.
A useful tool is this warrant calculator.
In summary, Cannabis Wheaton offers retail investors a unique and first of its kind investment vehicle in the cannabis space.
Whether this model will prove to generate long term shareholder value is yet to be seen, but being well capitalized with a strong management team bodes well for future growth.
For those interested in learning more about Cannabis Wheaton, be sure to check out our exclusive interview with Hugo Alves, President, in our August edition of CannaInvestor as well as the Technical Analysis in this month’s article by Ryan Hum, or visit www.cannabiswheaton.com.
Feel free to follow me on twitter @Weady28
Latter stage ACMPR license applicant with a market cap of <$8.2MIllion
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