IHL valuation, page-55

Some great posts on this thread. Regarding the Cost of Equity side, I am not an accountant, but from my understanding it can be seen from both an investors and Company's point of view. It is essentially about the financial return you expect to see for the risk of your investment. You can get tricky, as with option trading models and calculate share price volatility and risk free rates etc...but I find it more useful to look at risk/reward from a project perspective rather than a share price volatility one.

For example, with IHL, the MC is roughly $300 m at present. So let's say I require a return of 20% pa + on my investment for any small cap given the risk, then I would expect to see $360 m MC in 12 months. That equation is more of an arbitrary "return" and "mathematical" and doesn't help much as the real risk/reward calculation is where we seek to understand the nature of the project risk and potential dollar reward.

So with IHL:

• Multiple projects decrease risk
• Multi sectors decrease risk
• IP leads to significant premium in valuation
• The US Market values companies favourably in these sectors
• Advanced projects with good on going results dramatically decrease risk

Risk/Reward Psychedelics Sector - (will have multiple projects)
The evidence for Psylocybin through the last few decades is compelling. I think it is extremely low risk investment wise and has a very high probability of clinical success given the therapy/drug model.
Upside of success - Comparative metric today is Compass Pathways - market cap is $1.75 Billion AUD equivalent. Or in IHL terms the equivalent would be $1.60 SP or 5.8 X ROI. (Return on Investment)

Risk/Reward Cannabis Sector - 675A (SAARDS) clinical trials so far show high probability of success. Apart form the trial performance, we are looking at compounds that individually "already" have efficacy. Synergistic outcomes are indicated to further decrease risk. 42X (OSA) would also be a Company maker. Both have massive markets and no direct competition.
Upside of success IMO for just one of these trials reaching a positive outcome - Comparative metric is GW Pharma trade sale to Jazz Pharma. Or in IHL equivalent terms - $9.2 Billion AUD or $8.60 SP or 30.6 x ROI.

So, the risk profile to me looks very low compared to the multiple returns that can be achieved. As an example, we can calculate it based on an assumed risk - say an 85% chance of just one project succeeding out of the many (I have named just a few of them) versus the reward for that positive outcome. At one end of the spectrum is success in the Psylocybin space. Assuming parity with Compass Pathways, the reward is 600% ROI on current IHL SP. In the Cannabis sector, we would be looking at 3000% ROI for a GW Cannabis "hero" product equivalent.

The case here would be to invest 28 cents for a reward of $1.60 - $8.50 with a 15% risk of being totally wrong on all projects. Just another perspective and why IHL is my core stock for risk/reward.