CANNAINVESTOR Magazine December / January 2016 - Page 126

From a

Retail Investor's Perspective

The optimal point to sell CGC shares and buy MT shares was indeed when the spread was the greatest. But if investing for the first time (new money) then the optimal point on the above chart was on December 6th as the lower price differential (“the spread”) is just noise because the share price of CGC is not relevant to the decision. Why is that true? Just like the Monty Hall Problem…. Do you stay or switch but in this case there is no door (CGC shares) to switch away from. Holding CGC shares results in the same number of shares after the deal closes but so long as the share price of MT is less than 71.32% of the share price of CGC, there is no scenario (other than the deal falling through) where buying or holding CGC shares results is the better option if the intent is to acquire and hold shares of CGC. This example demonstrates this. Investor1 already owns 1000 shares of CGC while Investor2 is new to investing in the legal Cannabis industry and has $10,000 to invest and has elected to invest all of it in the world’s largest legal cannabis producer that is currently also the only such company to be listed on a major stock exchange (CGC). For Investor1 the MT:CGC ratio and the lower it is the greater the arbitrage (as it will be converted back at 0.7132).