TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.
Psychedelic Stock Watch was the first to point investors toward the potential for amplified returns through buying/trading psychedelic stock warrants. Psychedelic Stock Warrants Offer Interesting Leverage Play
Leverage indeed.
At the time that Compass Pathways(US: CMPS) commenced trading (September 18th) and the rally for MindMed Inc (CAN: MMED / US: MMEDF) began, MMED warrants were trading at ~CAD$0.05.
MindMed stock went on a tear. At its 2020 high, it was a 15-bagger from where it was trading before the CMPS IPO. But during that rally, MindMed warrants (MMED.WT) closed as high as CAD$4.71. Nearly a 100-bagger.
6:1 leverage versus the shares.
(Click on image to enlarge)
Numinus Wellness(CAN: NUMI / US: LKYSF) was the other psychedelic stock to have warrants trading at the time of the CMPS IPO, priced at CAD$0.045 at the time of the IPO.
Numinus stock registered a 10-bagger at its 2020 peak. But Numinus warrants (NUMI.WT) closed as high as CAD$1.76 – over a 40-bagger.
More than 4:1 leverage versus the shares.
(Click on image to enlarge)
Sadly (for U.S. investors), all of these warrants are derived from Canadian listings. U.S.-based investors who don’t have access to Canadian listings will not be able to capitalize on this opportunity.
For those who do, it’s a second-chance opportunity for amplified returns.
Obviously, psychedelic stock warrants (or any other warrants) will rarely deliver that same degree of leverage, no matter how far a stock runs. But for investors looking to increase their returns on psychedelic stocks – without employing margin or some form of artificial leverage – this may still be an interesting vehicle for you.
Second-chance opportunity in warrants
As a matter of basic arithmetic, warrants that trade close to zero will offer generally greater leverage than more expensive warrants. And with most psychedelic stocks at higher price levels than 2020, most (but not all) of these warrants are trading at much higher prices.
The sharp pullback in these stocks in 2021 means that some of these warrants are substantially discounted from recent highs.
Some of these warrants offer investors a more interesting opportunity than others.
MindMed currently has four series of warrants publicly trading. But even the cheapest of these warrants (MMED.WR) has jumped to CAD$3.20, on news of MindMed uplisting to the Nasdaq.
Field Trip Health (FTRP) also has relatively expensive warrants, currently trading at CAD$1.22. These MMED and FTRP warrants will not likely deliver much leverage both because of their higher price and both trade at substantial premiums.
Things start to get more interesting with the newest series of Numinus warrants now trading: NUMI.WT.B.
Trading at CAD$0.56, investors with high hopes for NUMI may see this as an interesting way to increase returns – although (obviously) it can’t compare with the original Numinus warrant opportunity. NUMI.WT.B is also currently trading at a large premium.
These warrants will offer only minimal leverage. But they still represent a cheaper way to gain exposure to these companies versus purchasing common shares.
Where investors really have an opportunity for leverage (and multi-bagger returns) is with the warrants for Mind Cure Health (MCUR) and Mydecine Innovations Group (MYCO).
Mydecine’s warrants are trading at CAD$0.165. The warrants are cheap and have a 3-year life – longer than average. But with an exercise price of CAD$0.70 (and with MYCO currently trading at CAD$0.435), they are trading at a premium of ~100% versus the share price itself. In other words, the share price would have to roughly double before the warrants would be in the money.
MINDCURE’s warrants are currently trading even cheaper than MYCO’s warrants (CAD$0.13), and they have a 5-year life, meaning (potentially) a much longer investment window. Consequently, MCUR warrants have a slightly larger premium today.
With an exercise price of CAD$0.80 (and with MCUR closing at CAD$0.45), the current premium on MINDCURE’s warrants is just over 100%.
Why such stiff premiums – on all these warrants?
Reminder:
MMED.WT: nearly a 100-bagger
NUMI.WT: a 40-bagger
Whether you participated in that fantastic rally or not, a “second-chance opportunity” for psychedelic stock warrants has encouraged investors to bid up prices.
It’s highly unlikely that investors will reap any 40-baggers off of the current batch of psychedelic stock warrants with current pricing. But for MCUR and MYCO warrants in particular, a leverage opportunity exists – which is not in any way far-fetched.
Both MINDCURE and Mydecine have previously traded well above the exercise price of their current warrants. If the stocks simply returned to those previous highs, both of these series of warrants would be well “in the money” – even with the large current premiums.
However, investors who follow these companies know that both MCUR and MYCO have been busy advancing operations, and will have hopes (if not expectations) of these stocks hitting new highs in any significant 2021 rally.
The original Psychedelic Stock Watch article on psychedelic stock warrants turned out (in hindsight) to be a huge understatement. The leverage opportunity in warrants then wasn’t “interesting” – it was spectacular.
Today, the second-chance opportunity in psychedelic stock warrants may not be spectacular. But it is definitely interesting.
