Recent Buy- Canna Wheaton Warrants (CBW.WT)
I made a deal with the devil, Chuck Rifici and bought into CBW. CBW got off on the wrong foot, with some shady dealings when the stock first came on the market. There was some conflict of interest when deals were done raising money. Stocks were being sold for $1 and insiders paid about .02 for them. Here is a BNN talk on the matter.
That’s a bad introduction into CBW, normally I would start off with all the great things going on. I guess bad news can overshadow the good.
I recently bought 5000 CBW Warrants. I’m new to warrants, but they are very similar to stock options so not that unfamiliar with them. I’m used to getting company stock options as a compensation plan and they have worked out well.
Warrants basically give you the right to buy a stock at a certain price. If you want a detailed explanation check out investopedias section on Warrants.
I’ll explain it my own terms with my real life example. Basically I paid .12 per warrant, in order to have the right to buy the stock at $1.50. So CBW has to get to 1.62 in order for me to break even. That is if I were to exercise the warrants to purchase the stocks right now.
The warrants trade on the TSX-V so the value is changing along with the stock price. CBW currently sitting at .94 so the stock has to go up about 60% for the warrants to be of value. This is why they are so cheap right now. As the stock price goes up the warrant price also goes up.
These numbers below are hypothetical and just using what I have read up on warrants. The pricing of the warrant can be affected by many things, such as time left to exercise. Here is a link to the CBW.WT news release with specifics of the Warrants
The price of the warrant+exercise price will also trade slightly higher than the underlying stock. The warrants aren’t going to be priced to allow you to buy them, exercise and then take a profit. You still need the stock price to go up to make a profit.
When CBW gets to 1.50 the warrant would cost something in the .25 range making the total price 1.75 (warrant price +stock price) (.25 +1.50)
This means my investment would be worth $1200 if I sold off the warrant and didn’t exercise it. So the stock went up 60% but the warrant is up 100%. As I’m learning, this is why traders like warrants, the gains are amplified compared to the stock price.
Why would you buy a warrant to buy a stock that costs 1.50 for 1.75. Well that’s the beauty of warrants, you aren’t paying the full amount, you just pay the .25 for the right to buy the stock at 1.50. This allows you leverage your money and buy way more shares, or the right to buy them.
I bought 5000 warrants for $600. If you were to buy the actually shares right now it would cost $4,700. Of course if the stock price doesn’t get up to the exercise price of 1.50 by June 29 2019 the warrants would expire worthless and I lose the full $600. Where as if I had bought the stock I can just hold them until the price rises. Key take away Warrants have a time frame.
Lets say the price gets to 2.00. I exercise my right to buy the warrant pay my 1.50 per share, plus the .12 I already paid. I would now have a profit of .38 per share or $1,900. If I think the stock is going to continue to climb, I could either hold it long term or just sell off my position. This a 300% profit, If I had bought the stock for .94 and it went to 2.00 it would be about 100%. If I had bought $600 worth of shares they would be worth about $1200, so a profit of $600 instead of $1,900.
OK Why Did I Buy CBW
CBW has a good strategy, they are basically funding producers expansion plans, while also giving these companies loads of industry experience. CBW will put up the cash to expand a producers facility for a certain percentage of profits. CBW has no operational expenses as the producer is running the facility. What does the streaming partner get?
It’s a win win for both companies, CBW will fund the expansion of a facility example below is the 50,000sq ft expansion at Abcann. CBW then gets 50% of the profits from this expansion. Basically Abcann gets a 25,000 sq ft expansion for free, except they have to maintain and operate the full expansion. So Abcann operating the facility and CBW just collects the profits.
Below is the partners CBW has signed up. If you check out their investor deck, you will see they have about 1.4million sq ft of grow space funded with their partners.
With a Market cap around 120 million, if CBW can manage to bring on all 1.4million sq ft their market cap will catch up to ACB and APH as they have around 1 million sq ft planned capacity and trade around 1 billion market cap currently. Could mean 10x stock price increase, if the currently values hold.