Please Read If You Are Holding TFS Part 2 *Please see my post in NF last thursday where I said that the stock would recover. Since my post it is up 50%. If you have been following me and made money from it, congratulations. I will be providing the NF forum with an updated post shortly, explaining my current position.
As for TFS, it is my hope that this post clarifies the situation of TFS.
FULL DISCLOSURE: I have no position in TFS, long or short. I had over 2million shares last week, however I sold everything on Thursday when it was down to 0.065. That dip on Thursday, those transactions were me. Allow me to explain why I felt the need to get out of this stock at that price, at a loss, despite the fact that it recovered to 0.08 later in the day.
I feel the need to explain something about the price of this stock for all those who currently own shares in this company. Your shares are worth 0.005 CAD. Allow me to explain this as clearly as I know how. If I am wrong in my assessment, please point out how so that I can correct my understanding. The following is just my opinion, and for the sake of those who still own the stock, I actually hope I am wrong.
This company is undergoing what is known as a reverse take over (RTO). It is a way for a company that wants to go public to do so, but for a much lower cost than an IPO. The company that wants to go public in this case is Canntab.
The way that this is usually done is that the company that wants to go public will hire lawyers to find an old company that is still listed publicly, but is virtually worth nothing. In our case this company is TFS. You can see from charts and from its own outdated website that this is not an active company; it is a shell corporation.
Once a suitable shell corporation is found the lawyers will draft the paper work so that the company that wants to go public basically becomes that shell corporation and is now a public company. In our case, this paper work is the LOI that TFS has entered into in with Canntab. You can see from a press release a day later, that TFS clarified that the agreement between it and Canntab constitutes a fundamental change to the company according to rules of the CSE.
In order to go public, however, a company must have a share structure, and it must find a way to incorporate the desired share structure into the shell corporation's existing share structure. This is what the language of the LOI is outlining. Please read how the current TFS shares are going to be consolidated. For every 200 shares you own, you will get 1 share. Then you will trade 4 of those shares for 1 Canntab share. So if you have 2,000,000 shares at the price of 0.08 (as I did last week), that is a total of $160,000 on paper. That's a lot of money. However after consolidation, 2,000,000 becomes 10,000. Then 10,000 becomes 2,500 shares of Canntab. So if you currently own 2,000,000, after the definitive LOI is signed in February, you will have 2,500 Canntab shares.
The real question then is how much are those shares worth? Well if you think that your current $160,000 value is going to stay with you after the consolidation, this would mean that your 2500 shares would have to be worth $64 each. But if you read the LOI, you can see that it states that the transaction will result in the Company having approximately 24.4 million common shares. If your shares are worth $64 each, then so would all 24.4 Million Canntab shares. That would put the value of Canntab at $1,561,000,000.00. Thats 1.5 billion. I think this is highly unlikely.
So then how much are your shares worth?
In the LOI it states how much it thinks the shares are worth, and what value it thinks the company has. By stating it will raise $5M through issuance of 1.25M shares, it is priciing the new Canntab shares at $4. If the Canntab shares are $4 and the transaction will result in aproximately 24.4 common shares, this puts the company's price at around 100M, which I think is a more reasonable and realistic price. But in this scenario, your 2500 converted Canntab shares that were worth $160,000, are now worth $4 each, meaning $10,000. Your original 2,000,000 TFS shares which you paid $160,000 for amount to $10,000, or 0.005 CAD per share. This is why I sold.
The reason why TFS released press releases stating they are unaware of any material change is because they spelled out pretty clearly in their LOI that each share is worth 0.005 and that is how the transaction will go for current shareholders. So anyone paying more than 0.05 a share is betting that the price of the new company will be a multiple of how many times their value is to 0.005 CAD. That is to say, if you buy TFS at 0.04, you think it is worth 8 times 0.005, or 8 times the valuation that the owners of Canntab, and their lawyers who conducted a lot of due diligence think it is worth. At 0.04, you are betting that Canntab has a market cap of $800m. It might one day have this market cap, but on the day of the IPO, after the consolidation takes place as expressed in the LOI, there will be 24.4million Canntab shares available at $4 per share. Even if you buy up all outstanding shares of TFS (114,000,000), after consolidation they will amount to only 142500 Canntab shares. Thats less than 1% of the outstanding shares after consolidation and represent only $470,000. Meaninig that figure is the real market cap of TFS right now.
On the day of the IPO it is likely that the price of Canntab will skyrocket. Personally I would buy it at a valuation of $100M, and probably even $200M. They have a propriety and patent-pending product that I think has a massive market. But even if the stock does go up 100% for 4 days straight (800%), your post consolidated shares would only be profitable if you bought them at 0.04. Meaning if you can sell your shares at any price over 0.04, then you will be better off than someone who didn't, and Canntab went up 800%. But why not just sell it now and buy Canntab when it opens after the LOI in February? This thing is worth 0.005 CAD. You need to understand this.
So then why is the price at 0.07?
Well there are a number of reasons. The first is that people who are bullish on Canntab, and I would argue rightfully so, are willing to pay up to 0.02 for this stock. In doing so, they are pricing it at 4x its 0.005 value (~$400m market cap). You can see this price increase in December. Another reason is that you can see from CSE data that there has been a steady increase in the short position of TFS. I mean, if you believe my thesis, there is absolutely no real reason not to short this stock as anyone who holds onto this stock into the consolidation will be paying literally double its value on the day it opens if they even buy it at 0.01. And considering over 100M shares have changed hands since this LOI was released, there are millions of shares that will be a 50% loss at 0.01, meaning if you can short it at 0.02 you will make 100% gains, on millions of shares. But as people short, they need to cover their shorts, and as wee have seen, the price has risen significantly since its pre-LOI price. Therefore some will short at 0.04 and want to cover their shorts at 0.02, and therefore still make money. Another reason is that we are in a very odd time when any company that says it is involved with Cannabis or Blockchain has seen its price skyrocket, almost immediately. People are trying to get into companies as soon as they do this, and many do this without conducting due dilligence. I mean, I did it last week and paid heavily for it. And I bet I am not the only one...
I also want to note why I am not shorting this stock despite my thesis. Firstly, it is entirely possible that I am wrong and there is something that I missed while conducting my due diligence and analysis. In that case, if I were to short this stock and it goes up, I would be under water and thats something I want to avoid. Its the main reason why I don't short anything; you never know where the price of a stock will go. You might also have people refuse to sell, and therefore there might be a short squeeze leading up to the RTO in February. The market is complicated and I haven't been in it long enough to know how it behaves, however I am looking forward to seeing what happens with this stock before its IPO.
I would caution, however, if you have some shares of this stock, and my thesis sounds like it makes sense to you, to get out before this thing gets to 0.005. I was up all night Wednesday when I realized this because I thought it would plunge, and when it started to on Thursday I almost had a heart attack. I do not wish this for anyone, especially when TFS could have simply stated in its LOI that all TFS shares will effectively be worth 0.005 CAD, rather than lay out all that complicated math. Investors should have a clear understanding of a stock, and I feel TFS did not do that in their LOI, especially in this climate where there are a lot of uninformed retail investors (like me last week). So that is why I have written this. I hope that I have helped some people, and I hope to continue to provide retail investors on this forum with clear, understandable explanations about certain stocks that I am following. And I hope that those who follow me can make some money with me too (So far I was right abot NF, but pay attention to my post later today as I clarify my position).
Also, as a final note, if my analysis is inaccurate or you feel differently, I would ask that you try to explain why so that I can have a proper understanding of this stock and its price. Full disclosure, as I hope I have made it clear, I will likely be going all in CannTab at a market value of $100m because I think that is very low for what the company is about. So I expect the price to skyrocket in its first week (easy money), however I do not think that holding onto TFS shares through the transfer is a good idea, for the reasons outlined above (it will have to go up 800% for it to be worth it to buy this stock at 0.04 CAD).
I am just trying to be as honest as I can and provide these boards with reasoned, clear market analysis, something that I believe is lacking on this board. While I have been investing in many of these penny stocks over the last few months and have made a small fortune doing so, I will now only invest in companies that have some sort of proven revenue stream. Many of these MJ and Blockchain stocks are highly speculative and while some may double your money, others may whipe you out entirely. I believe that starting with TFS, and then others that I will detail in the coming days, we will see many of these stocks lose their value entirely. This market seems too speculative for my taste, even as I see myself lose out on potential gains from stocks that look way too risky.
Again I repeat that this is only my opinion, and if any reader can show me how I am mistaken, I would greatly appreciate it, as my goal is to have an accurate understanding of the markets (and profit from that understanding).
Sincerely,
1.61