Newstrike Brands Ltd NWKRF

Opinion and HIP CMED Synopsis

[Sevam123]

My opinion.... Original deal was priced right in November.  I still think it is priced right.  I own both CMED  and HIP shares. Here's why I own  both and here's why I think the deal was/is still priced right.  

 

HIP caught the cannabis stock rally/price ramp up.  CanniMed did not.  That is not because CMED was uis not as good a company or was unworthy of the ramp up but rather they did not  get a chance to enjoy the entire ramp up because Aurora's hostile takeover price capped their stock price at $24.  So while other weed stock grew 300-500% CanniMed grew at a similar pace to its' industry peers and then stopped in the $24 range ($21-27). Why?  Because that was the Aurora hostile bid price.  Absent the downward pressure from the Aurora bid CMED should have enjoyed the same industry ramp up in its entirety and be trading well north of $45 right now. 

 

The synergies of the deal with HIP in my opinion would (in the current market) see the value per share of the CMED/HIP combo trading higher still.  Imagining that the combined business would trade at a minimum of $50 I did this math 50X33/1000=$1.650. Note: if this deal is approved CMED price should go up immediately because the downward pressure from the Aurora bid also lifts immediately.

 

If you are speculating on this just pick the price you think the combined entity will sell at post merger (or what CMED should snap up to after merger approval is announced) and multiply by 33/1000 to establish what you may want to pay for HIP shares. Discount this price as you wish to factor in your wished for future profit and your tolerance for risk.

 

$45X33/1000= $1.485

$50X33/1000= $1.650

$55X33/1000= $1.815

$65X33/1000= $2.178

$75X33/1000= $2.475

$90X33/1000= $2.970 etc.

 

I own both CMED and HIP shares. I've owned HIP shares since before the recent industry price ramp up and have held them through this.  I bought CMED above $24 speculating that the deal will go through. If it does not CMED shares should still be worth at minimum the hostile offer price so the downside is mitigated.  I continue to own HIP shares speculating the that if the deal happens to fail for some reason HIP will run again on its own.

 

Finally, based on current market capitalization of peers the CMED/HIP combo could ramp to 3-4 billion if the industry valuations just hold their ground at current levels and CMED/HIP just catches up to the new normal in Cannabis valuations.  Post merger there will be about 37million shares outstanding.  Let's use 3  billion as a market cap.  $3,000,000,000/37,000,000shares = $81per share.   So future value of HIP share at that valuation would be  $81X33/1000=$2.673

 

Lots to chew on here but I hope this helps people figure out how much they are willing to pay for HIP and CMED shares.

Invest wisely!!

[stckapprentice]

so I don't really understand the deal to wel.... after the merger goes through , will the hip stock no longer exist and just be cmed? Or will I have shares in hip and cmed or is it split with some crazy math thing  Any insight ?

[Sevam123]

You will have CMED shares.  Your HIP shares would convert to CMED shares so you will no longer have HIP shares.  This is because the companies are merging to become one.  The ratio is 33 CMED shares for each 1000 HIP shares you own.  The math in my post reflects this.

[surveyor2582]

Does anyone actually believe that the terms of a proposed offer on Nov.16 would still apply on Jan.12 with out renegotiations? Do you actually believe that they expected the stock to not trade for two months? Please use some common sense and wait for a better offer.

[newday123]

I totally agree that waiting would be the best strategy going forward. This should elevate the price of Hip higher as they are going to start producing etc etc But it really seems that HIP management is very keen to get this current merger deal going. I think the merger would be a good combination but I still can't get over how crazy that merger ratio is 1000 to 33??? No matter how I

[Whitewitch]

This post has been removed in accordance with Community Policy

[Sevam123]

The shares are not at 80 cents right now because the market understands that CMED is worth way more than $24/share and is only trading at that level because of the ACB hostile takeover bid which goes away if they merge with HIP

[surveyor2582]

Our shares are worth at least two dollars based on our licenses and the Hip name alone. 

[Sevam123]

The share exchange ratio is influenced by the value of the deal and the number of shares each company has outstanding.  The wide ratio is not just price.  HIP has 389,000,000 shares outstanding. CMED only has 24,443,000.  Even if the values of each comany were identical the exchange ratio on the shares would have to be  roughly 389 to 24.  

[Drocker]

Correct!     never the less, the valuations must see a premium to market value or there is no point in making the offer as it will be rejected.

[Sevam123]

I completely believe that the Nov. 16th terms would apply.  No extraordinary material change has happened with either company since they made their agreement. The benefits to each still remain intact.  All that has happened is that a lot of investors got very excited.  I think the same excitement and more will happen for the combined companies.  Don't forget also that as

[stckapprentice]

so because I was foolish and bought at 3 dollars I will lose 1500 roughly if the deal goes through. to recoup my loss I will have to sell cmed at $91

[Wonnetr]

But! If you sell HIP now, and by CMED you will recoup your losses if the the deal goes through on day one. CMED will go to 40 bucks cause they got such a good chicken deal! It's going to happen. The hip even wants it to happen. They have 33 percent of they vote. 51 is owned by CMED. So guess how they get a 66 percent vote? Retail doesn't have a say.

[stckapprentice]

so why isn't all hip share holders just selling right now ? 

[Swampcat27]

three reasons:   hope, emotion, and speculation.

[Partwaythere]

I don't assume; myself personally I did, then re-bought CMED; just in-case HIP share holders said no. You still earn CMED shares with your HIP; unfortunately you bought at $3, so yes you'll lose money if you sell or merger happens. If merger does not happen then hang on; might take a bit to get back to $3 bucks but you hold them and eventually you'll have a winner.

[stckapprentice]

so now I must decide... sell now and take loss but immediately buy CMED and hope for deal to go through to recoup intial investment OR hold hip and hope that deal doesn't go through which is highly unlikely it seems... 33 percent vote by hip and they publicly say they back it so hold hip and hope in 3 years it will be around 10-15 a share  or sell now and buy cmed. I guess will have

[Partwaythere]

Good summary! I think though the actual HIP hold just over 5%.

[stckapprentice]

well heres to hoping that some better news circulates this weekend

[SPUMMAGNET]

If cmed shares are worth 24 bucks then that is why the ratio of 1000 shares going to 33 shares of hip which become cmed will be worth 24 bucks each. I think it based the numbers on a buck and half for hip(i am looking for that info right now.} I don't think you lose in the long run. it really depends on what you bought in at. This time next year it wont matter you will be in the green

[Extalliones]

I think I just got dumber reading this. 

[newday123]

I can give you an example.Last year I held some stock that Weed was taking over(ie to merge), and when it happens, they give you in the ratio of what was stipulated in the merger agreement...ie I guess in your case, if you just have 1000 shares of HIP, you should see 0 HIP in your account when merger happens and 33 stocks in the name of CMED in your stock account, and I guess the price of CMED

[stckapprentice]

well that will suck considering... I bought 700 shares of hip at $3.00 - 2100 invested now... .033x700  23.1 X 24.29 (current price) = 561.09 1539 lost in dillution 23.1 x 45 = 1039.50 23.1 x55 = 1270.50 23.1 x 91 = 2102.10 CMED share price will have to be $91 dollars for me to break even on my intial investment..... going for a cigarette now

[Drocker]

A buyout is always at a premium to market value. If the last offer was about 50% higher than that current market value that premium should stay roughly the same. If the offer is not at a significant premium to current market value it will be rejected.

[stckapprentice]

I really hope so... I really hope the companies see these posts and realize while they stand to make millions.. we stand to lose thousands. 

[Whitewitch]

This post has been removed in accordance with Community Policy

[Drocker]

No company will make an offer it knows will be rejected by the shareholders!!

[surveyor2582]

That will not legally happen.

[stckapprentice]

agreed - this should be getting heavy news attention... why isnt it

[dionsays]

If it was know there was a buyout offer at 30 to 50 cents, why would you buy above that. Unless you expected the stock to increase they way it. One who bought, would buy on pure speculation; that the buyout would not happen. If you did buy above .50 cents the risk is yours...... Who knows how much ACB bought.......

[stckapprentice]

I agree, It's my fault for not researching the buy out deal. I just saw the news about hip and decided to jump in blind. LIke a fool. My initial thought was if it's 3 dollars now and they are going to merge obviously the deal would involve a multiple on the current share price...  I was wrong? I guess the past holds more value then the present in the scenario which is just wrong

[brianbki53]

33 for 1000 is not a good deal.  You're better off sellilng now and eating the loss. 

[Partwaythere]

Actually, in Nov 2017 it was a great deal. The deal still holds; even though newbies bought for $3 bucks. I'm sorry but did you really think HIP had a 1.3B market cap? FYI; if HIP declines CMED, they fall back down to $0.32-$0.40 for at least 2 years. Until they can get up and running, eventually they'll be fine. I had HIP from day 1; sold to newbies for $2.94; then bought CMED. I hope

[stckapprentice]

holy... wish I had figure all of this out in 2017