Monday, 5 March 2018

Cannabis is on the Rise Again

Since early February starting with our article "Buy WEED When There Is Blood On The Streets", we have been repeatedly calling Canopy Growth Corporation (TWMJF) (WEED.TO) a strong buy at least into the $30's. WEED closed in Canada with a stock price of $32.37, the highest close in a month since we made our call. While we are still bullish on the stock, we have closed this position. We believe that as cannabis is on the rise again, there are two positions that will offer greater upside. Those are Pascal Biosciences Inc. (BIMUF) (PAS.CN) and Newstrike Resources Ltd. Warrants (HIP.WT.CN). If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 471 followers despite not giving out a lot of alerts, a fact that we think is indicative of a diligent and prudent stock picking history. If you would like to share this blog, make sure to use the URL "nasdaqnewsreports.blogspot.mx" as certain spam filters on social media don't let you post blogspot.com addresses.

In addition to WEED, we have experienced incredible returns for our cannabis-related picks. In July, we picked Isodiol International (ISOLF) (ISOL.CN) in our articles Isodiol: 10x Undervalued Cannabis Stock Inks Deals With Canopy and Isodiol: A Profitable Cannabis Company. ISOL moved up nearly ten times since then, hitting a high of $2.14 in Canada from $0.23 and sits at $1.13 today. In November we picked Global Cannabis Applications, or GCAC, (FUAPF) (APP.CN) in our article A Cannabis and Blockchain Story when FUAPF was sitting at $0.09. GCAC moved up more than eight times in a couple of months with the U.S. symbol hitting a high of $0.77 and sits at $0.28 now.

Both ourselves and our readers who got in early and cheap made incredible gains on Isodiol and GCAC with plenty of opportunity to sell at several times their investment. Even if they held until now, they are still sitting on substantial gains. However, we think that these next two cannabis picks will greatly outperform those two. Isodiol is a profitable company in a hot sector. GCAC is an app and token company looking to streamline data for that hot sector. But what Pascal Biosciences has discovered goes far beyond what those two companies can do. The Newstrike Resources Warrants offer incredibly cheap leveraged upside that have just caught on today. We will start with the bullish case for the warrants.

Newstrike Resources Warrants (HIP.WT)

HIP.WT gained a lot of interest on Monday, including by us. The warrants rose 81% to $0.145 as the stock rose 23% to $1.12. HIP.WT was part of a bought deal financing that the company completed a couple of weeks ago. The strike price is at $1.75 and the warrants expire on February 16, 2020. The warrants have an acceleration clause where the company has the option to move up the expiry to as soon as 15 days after notice if the stock price trades above $2.60 for ten consecutive days. This is not really much of a worry at this point, because if the stock does reach that high, the warrants will be intrinsically worth $0.85 and everyone buying now will be very happy.

The warrants trade out of the money so the key to understanding the value of these warrants is to understand volatility. The more volatility the better, and that works both to the upside and to the downside. The best way to illustrate this is to use an example.

Let's say you have the ability to buy 10,000 HIP shares at $1.20 for $12,000 or 30,000 warrants of HIP.WT at $0.20 for $6,000. You are convinced that this stock will either make it big and trade at $5.00, or blow it and trade at $0.10 in two years. Under the successful scenario, your 10,000 shares are worth $50,000. But (and lets assume for simplicity of the example that the warrants weren't called in early) the 30,000 warrants can be exercised for $3.25 worth of profit per warrant, or $97,500. Even under the accelerated call-in scenario a warrant holder wins because they can always sell their warrants and buy the stock at that time. If the stock price is $2.75 at forced exercise, 30,000 warrants at $1.00 is $30,000, enough to buy 10,900 shares. Plus the $6,000 remaining difference between the original investment of warrants versus shares.

But along with increased upside, downside is also less because the investor put in half the money into the warrants as they would have if they bought the stock. If the stock tanks to $0.10, the warrant holder loses $6,000. The shareholder loses $11,000.

The worst case scenario for the warrant holder is if HIP stays stagnant, or under $1.75, for the next two years. The warrants would expire worthless but the stock holders make some money under this situation. So volatility, both to the upside and to the downside, offers a superior investment trade-off for the investor. Therefore, the higher the expected volatility, the greater the value of the warrants.

This is where it gets to the actual valuation part of HIP.WT. Here is an options calculator chart from CBOE:


The price of HIP of $1.12, strike price of the warrants at $1.75 and days to expiration of 710 are all known inputs. The interest rate is auto-inputted based on number of days, but even if it was 0% that would only impact valuation downwards by a penny - as in other words it is not an important variable. Volatility is the key here. A 100% volatility calculates a $0.4675 value for the warrants, over three times their current price. Conversely, a $0.145 price on HIP.WT implies a volatility of only 46.97%. It is very easy to illustrate how ridiculously low a number like that would be on this stock.

Look at WEED's option chain on the Montreal Exchange:

The 30-day historical volatility has been 109.14%. Even the longest-dated options expiring in February 2019 have implied volatility of around 65% on the calls and around 87% on the puts:


WEED is trading at a $6.4 billion market cap in Canada, over ten times higher than HIP's market cap of $540 million. A larger cap stock is going to have much lower volatility than its junior counterpart, so a 100% volatility assumption on HIP when WEED has a long-dated call option implied volatility of around 65% and historical 30-day volatility of 109% seems like a conservative enough assumption. Even using 65% would lead to a fair market value of over $0.25 for HIP.WT. No wonder people bid up the warrants on Monday. We expect that to continue at these cheap prices.

Pascal Biosciences Inc. (PAS)

We first recommended PAS as a very strong buy in our report "Pascal Biosciences: The Cannabis Immunotherapy for Cancer?" last Wednesday evening. The stock rose 35.8% to $0.55 the next day, but has since pulled back to $0.465. We cannot stress how bullish we are on this company, especially since cannabis stocks have been on the rise again. PAS has the potential to impact how the medical cannabis industry is perceived and save countless lives and hardship from chemotherapy and other drastic measures when combating cancer. This is the news release from February 21:

Pascal Biosciences Identifies Molecules in Cannabis That Stimulate the Immune System to Destroy Tumor Cells


VANCOUVER, British Columbia and SEATTLE, Feb. 21, 2018 (GLOBE NEWSWIRE) -- Pascal Biosciences Inc. (TSX.V:PAS) (“Pascal” or the “Company”) today announced the Company has discovered certain cannabinoids that enhance the immunogenicity of tumor cells, rendering them more susceptible to recognition by the immune system. This discovery is important because the leading class of new cancer fighting agents, termed “checkpoint inhibitors”, activates the immune system to destroy cancer cells. Enhancing recognition of cancer cells with cannabinoids may greatly improve the efficacy of this drug class. Cannabinoids are the chemical compounds which give the cannabis plant its medicinal properties with over 100 different cannabinoids identified. There is a growing body of research demonstrating the effectiveness of cannabinoids in the treatment of cancer symptoms, including nausea, appetite enhancement, and pain management. However, Pascal is the first to identify a mechanism in which cannabinoids may provide a direct benefit in immunotherapy.

Tumor cells often arise in individuals, but they are usually recognized by the immune system and destroyed. The immune system identifies cells as either normal or dangerous in a process called immunosurveillance. Cells that have become cancerous are recognized by cytotoxic T cells, specialized immune cells that target and kill the tumor cell. However, some malignant cells, particularly metastatic cells, employ an immune escape strategy to subvert and avoid recognition and are not recognized and attacked by cytotoxic T cells. This allows the spread of tumor cells to other tissues, potentially leading to fatal disease.

Checkpoint inhibitors are recently approved drugs that activate the immune system to kill tumor cells. These drugs are commercially successful (Opdivo®, Keytruda®, and Yervoy® together had over $6B in 2017 sales) and more importantly, can cure patients with some types of cancer, but only a fraction of patients (generally less than half) respond to the drugs. There are currently many efforts to find drugs that will enhance the activity of checkpoint inhibitors, and Pascal has discovered cannabinoids that activate a key step for immune recognition.

University of British Columbia Professor Wilf Jefferies and his research team in the Michael Smith Laboratories have developed a proprietary assay to discover compounds that can increase immune recognition of tumor cells. Dr. Jefferies, the scientific founder of Pascal, and his team screened thousands of natural products and subsequently identified certain cannabinoid molecules which have the greatest potency in their assay. While different cannabinoids show numerous biological and pharmacological effects, this is the first demonstration of immune activation by individual cannabinoids. Scientists from both UBC and Pascal have demonstrated that specific cannabinoids have strong potency on both mouse and human cancer cells.

“We are very excited about this novel discovery,” commented Dr. Patrick Gray, CEO of Pascal Biosciences. “Cannabinoids typically have good pharmacological properties, as most have low toxicity and are easily absorbed into the blood, which are great advantages for drug development. In combination with immune checkpoint inhibitors, cannabinoids may significantly improve cancer care. We look forward to soon translating our results into clinical studies.”

We wish to highlight specifically the line "Pascal is the first to identify a mechanism in which cannabinoids may provide a direct benefit in immunotherapy". Reviewing cancer.gov's website we see that CBD has been studied in a variety of anti-tumor activities, but it is in fact true that Pascal is the first to identify a direct benefit to immunotherapy.



Why is this so important? Review this video for a brief comparison of immunotherapy to chemotherapy:


Chemotherapy is an awful, painful process that can lead to permanently debilitating side effects. The side effects of immunotherapy are benign in comparison. The reason why it is the primary therapy in only some cancers instead of all cancers is that it is still not as effective as chemotherapy (some cancers it is more effective). What proponents of medical cannabis have suggested and what Pascal has for the first time demonstrated is that CBD can be used to enhance recognition of cancer cells which will improve the efficacy of immunotherapies.

After reviewing the Reddit thread about the Pascal discovery, we have seen some incorrect assumptions put forth which may have led to the cooling down of the stock after its initial run. Namely, that Pascal will be unable to patent its discovery that is based off of CBD. This is untrue. GW Pharma Limited (GWPH) has gotten around this issue and holds a patent for "Phytocannabinoids in the treatment of cancer" which appears to be the basis for its Phase 2 study on Glioblastoma, one of the points referenced on the cancer.gov website. We have confirmed from the CEO that Pascal has already filed for patent protection:



GWPH is actually a great comparable to what Pascal could be. Its market cap is over $3 billion with Epidiolex in its final stages before becoming a commercial drug for certain types of epilepsy. The bearish argument on GWPH has always been that one could go to a local dispensary to experiment with a treatment that works best for them. The bullish argument is that many people will prefer an FDA-approved and insurance-covered product. Judging by GWPH's market cap, the bullish argument is winning.

Inclusive of a recent $5 million CAD private placement, Pascal has 50 million shares outstanding. Fully diluted (and we do expect warrants to get exercised well in the money, including the new ones at 60 cents), it's 67 million outstanding. With PAS closing at CAD $0.465 on Wednesday, that is a minuscule $23.2 CAD million market cap, $31.2 million fully diluted. Pascal is trading at less than 1% of GWPH's market cap. The global cancer immunotherapy market is expected to be worth $119.4 billion by 2021 while the epilepsy market is expected to grow to $6.9 billion by 2027. So Pascal's market is a lot bigger.

Pascal has a $10 billion discovery in its hands. The issue is that it will likely cost hundreds of millions of dollars and five or more years to take the discovery to the market. GWPH has an accumulated deficit of over $450 million to put this into perspective. With $5 million in the bank from the private placement and an additional $9 million assuming all warrants are exercised...the company is still hundreds of millions of dollars away.

Pascal is not going to do this on its own, nor should it. GWPH would make a prime candidate in a takeover bid. But the licensed producers in Canada, particularly Aurora Cannabis Inc. (ACBFF) (ACB.TO), would make a great suitor as well. We can also see a partnership deal where Pascal gets paid substantial milestone payments.

We think a buyout offer or at least a strategic partnership will occur from this discovery. But even without that, we think that Pascal should be worth a minimum of $100 million in market cap, or about $2.00 per share. This is an upside similar to what we saw on Isodiol and GCAC, and should get to that kind of return in short order if the cannabis industry heats up again.

Disclosure: We are long stocks listed in this report.

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The Cryptocurrency Codex from the Cryptocurrency Institute 

Secrets To Unlimited Free Bitcoin 

The Crypto-Currency Evolution eBook

Bitcoin Complete Guide for Dummies

The Bitcoin Miracle Guide

The Bitcoin Cheat Code Book

The Crpytocurrency Course

Bitcoin Investing Live


If you're interested in making money investing or trading the stock market, here are some good resources to assist you. This includes technical analysis, investing in the weed sector, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies.

Microcap Millionaires Free Video: Cheap Gold Miner Set to Soar in Fall 2017

The dividend stock report from dividendstocksonline.com





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