The Cannabis facility occupying the old Kraft plant is owned and operated by FV Pharma Inc. a wholly owned subsidiary of FSD Pharma Inc. In March 2018, FV Pharma signed a joint venture with Auxly (originally Cannabis Wheaton) to provide finance to FV Pharma in return for streaming rights to 49.9% of the product that was grown in the facility – but this agreement has now been terminated. It is not known what the financial penalty might be to FV Pharma. Work on the expansion of the facility was supposed to be completed by December 2018 but has still not been completed. Information is limited but it seems that FSD Pharma is in turmoil. CEO Rupert Haynes has been “terminated” and replaced with Dr. Raza Bokhari, Executive Co-Chairman. As far as can be determined, Thomas Fairfull is still the CEO of FV Pharma which runs the Cobourg plant.
One noticeable change over the last several months is that the focus of FSD Pharma has become medical uses of Cannabis as distinct from recreational.
But the termination of the joint Venture brings other concerns. Auxly was to provide $50M in finance as well as management assistance for the first phase of an expansion to a 220,000 square foot self-contained cultivation facility. Currently only 25,000 sq. ft. is operational (photo at right). So far, Auxly has advanced $7.5M of the $50M – it is not known where the balance will now come from.
Auxly explained the termination of the agreement in a Press Release:
In the course of the Company’s efforts to advance the JV Facility Development, it identified contractual breaches relating to FSD Pharma’s management and staffing obligations of the JV Facility, as well as significant concerns regarding certain aspects of the buildings’ infrastructure. On January 17, 2019, the Company provided notice to FSD Pharma of such breaches in the hopes that FSD Pharma would work with the Company toward a resolution. To the Company’s disappointment, FSD Pharma failed to remedy its breaches and instead purported to terminate the Agreement effective February 6, 2019. The Company subsequently terminated the Agreement effective February 7, 2019. The Company reserves all of its rights under the Agreement.
It does not look good although FSD Pharma remains upbeat with the statement that: “The Board believes the Company has unique and invaluable assets and is taking appropriate actions that will support long-term positive cash flow and shareholder value.” (They trade with the ticker HUGE – priced at around 28 – 30 cents).
There are also other changes to personnel – FSD Pharma announced that a headhunter has been hired to “assist with the search for a pharmaceutical executive and other senior executives to lead FSD Pharma’s pharmaceutical business practices.”
- The Deep Dive – FSD Pharma severs ties with Auxly Cannabis
- Business Wire – FSD Pharma Announces Strategic Developments
- Marijuana Facility Confirms Financing – 7 March 2018
- More from Deep Dive – Feb 8, 2019 – Added Feb 9 – Thanks Walter for pointer via his comment below.
Footnote: Thomas Fairfull sold $8.5M in FSD Pharma shares in October 2018. Source
Update and response from FSD Pharma – 14 Feb 2019
Slightly Edited for brevity
On February 6, 2019, the Company announced it had implemented changes in leadership and business practices to optimize operations. Accordingly, the Company announced that Dr. Raza Bokhari, Executive Co-Chairman, has been appointed interim Chief Executive Officer of FSD Pharma.
To optimize operations, FSD’s Board of Directors terminated a definitive agreement with Auxly Cannabis Group Inc. (“Auxly”) on February 6th, 2019. FSD believes that Auxly was under clear obligation to develop all aspects of the company’s cannabis cultivation facility in mutually agreed upon staged phases. Auxly had made commitments anticipating that the first phase of construction would be completed and ready for Health Canada approval by the end of December 2018 which never materialized.
Dr. Raza Bokhari said: “We have a clear plan moving forward to build a global retail and medicinal cannabis footprint. We intend to continue our 220,000 phase 1 building expansion and are assessing different opportunities with other potential strategic partners and construction companies including utilizing our cash, securities and other assets on hand to continue progressing forward. We will update investors as soon as possible and only upon signing of definitive agreements. We will continue to optimize our 25,000 square foot licensed cultivation area adding high value varietals, while utilizing best practices in the latest agricultural science. We are making good progress with the much-anticipated sales license and we have a strong cash and asset position with no debt.
In 2018, FSD has made strategic investments totaling CDN $8 million in Cannara Biotech, SciCann Therapeutics (“SciCann”), Hightide Ventures, Huge Shops, and Pharmastrip Corp (“Pharmastrip”). These investments have quickly grown to nearly CDN $25 million as per current market value. Additionally, FSD recently signed royalty agreements with Canntab Therapeutics, Pharmastrip, World Class Extractions Inc., SciCann, and Solarvest BioEnergy Inc. which FSD expects to pay dividends over time.
“Acquisition of a platform company to advance R&D of synthetic and biosynthetic cannabinoids to commercial FDA approved drugs worldwide remains our ‘flagship’ strategy,” said Dr. Raza Bokhari. “We are confident that we will soon identify a suitable and compelling platform to execute on our strategic intent. We were disappointed that the intended acquisition of Therapix Biosciences did not materialize but are at the cusp of unlocking tremendous opportunities for the FDA approved application of synthetic and biosynthetic cannabinoids to address a variety of unmet needs in diseases of the central nervous system, sleep disorders, skin conditions, and to generate alternative treatment options to opioid based therapies.”
Shareholders of FSD Pharma met in a special meeting on January 22nd, 2019 and authorized the Board of Directors to consolidate class B shares and take additional steps that will enable the company to list on a major US securities exchange. The FSD Pharma Board is actively engaged in evaluating the appropriate exchange and the optimum time to do so.
The Company believes these are transformational times for the medicinal cannabis industry and for FSD Pharma shareholders, employees, and stakeholders.