Warrants are a great way to earn some serious leverage on your favorite stocks. Trulieve’s warrants are famous for earning people 500% or higher returns in 2020 and Cresco and Clever’s warrants have earned people some serious money in 2021. Let’s examine Parallel’s warrants, the company lead by one of the former Wrigley Company executive that is currently in SPAC mode through Ceres Acquisition Corp:
- Warrant Ticker: CERWF
- Expires: 5 years from IPO (this summer)
- Strike: $11.50
- Acceleration clause: $18 (must trade at $18 for any 20 trading days within a 30- trading day period)
- Exercisable: 65 days after IPO
- Current stock price: $11.13
- Current warrant Price: $2.30
- Leverage: 4.8
Generally, once in the money, a warrant’s price trades at or near the difference between the share price and the strike price. Here are the returns someone could expect:
Let’s say the stock gets to $18 from today’s $11.13 stock price and $2.30 warrant price (rounded):
- Stock gain: +62%
- Warrant gain: +183%
If the stock gets to $25:
- Stock gain: +125%
- Warrant gain: +487%
If the stock gets to $30
- Stock gain: +169%
- Warrant gain: +704%
At a $30 stock price, Parallel’s market cap would be at $5.9 billion or the same as Cresco and $450 million less than Verano, so it’s possible from a valuation standpoint.
Parallel executives don’t have to accelerate the warrants when the stock hits $18, they just have the option to. Also, by their own details, a warrant holder can’t even exercise for the first 65 days after the IPO. It’s not unreasonable to see Parallel’s stock take off in the first two months of their IPO, especially if a few catalysts line up like the passing of the SAFE Banking Act or rescheduling of cannabis by the DEA, or both. Also, also catalysts include continued legalization in states like New York or Pennsylvania. A $30 stock Parallel stock price or 700% gain for the warrant is not out of the question.
Warrants are not for everyone, they are volatile, do not give you voting rights, you have no rights to dividends and they can be accelerated. Research these risks before you decide to buy any warrants.
Ceres Acquisition Corp warrant details: https://mjstocktrader.com/ceres-acquisition-corp-parallel-warrant-details-ticker-cerwf/
