Brief Thoughts on the HIP, ACB, CMED Love TriangleHere is my short thesis on why I think HIP recently spiked, and why I think it will go higher still. Clearly it involves Cannimed, and would like some feedback if you agree with my reasonsing, so I have posted it in this forum.
This week Newstrike was approved to sell cannabis and to double its capacity to roughly the size of Aurora's after it completes its Edmonton Sky facility. Read that again. Newstrike will essentially be on a similar playing feild in terms of productive capacity with Aurora in a matter of months. A 4.5B company will be equivalent to a 800m company. Or maybe the price needs to change, and I will explain why.
In December, Aurora frantically tried to solicit investors to reject the deal and tender their shares early for theirs. They argued that Newstrike has 0 revenue, no sales license, and limited capacity.
That has all changed in the last 2 weeks.
As soon as that news came out, we saw increased buying in Newstrike. And the way Aurora has been throwing money around, I suspect that they are the reason the price went up. Aurora knew that anyone who owned Newstrike would agree to the deal, thus making an international medical and recreational marijuana juggernaught. If the deal happened, there would be no way they Cannimed shareholders would agree to the garbage price cap of $24 when they know that together with the newly licensed Newstrike, they are worth north of 3B, probably more (share price of about higher than $100).
So I think Aurora started to want to buy shares of Newstrike. Think about it. Aurora has $140m cash (financing) just sitting there to be used for their expansion. They have already used 60M to buy up other smaller companies at a huge gain. It is well within their prorogative to use that money to make sure they can execute their expansion plans. And their current and most pressing expansion plan is the acquisition of Cannimed. If Cannimed buys Newstrike, it will likely be the end of their current expansion plans. And from a financial perspective, buying shares in a company with 400k sq ft capacity and a license is really never a bad idea, even if the deal goes through.
So I think Aurora started to buy shares of Newstrike. Slowly at first, but as soon as the price started to go up, they knew they had to secure it fast. That's why the price went up so fast. And while they probably didn't sell (or at least sell ALL their shares) when the price started to drop, I think they are likely looking to buy more this coming week. That's why the price generally stayed above 1.70 as a support, even when it looked bad. I think that right now Aurora is keeping the price at this level because it is scared that if it goes lower, people will vote in favour of the merger and ruin their expansion plans for acquiring CMED.
Now, I could be wrong. This is just me speculating and I have tried to lay out as clearly why I think what I do. Its important to remember that if the deal doesn't go through, then Newstrike is still a licensed company with production capacity equivalent to 245M by the end of this year, supported by a Legendary Canadian Rock Band. I think it will be fine.
Sincerely,
1.61