FSD Pharma Approved To List On Nasdaq

C.HUGE, FSD Pharma, cannabis, Nasdaq

FSD Pharma (OTCQB:FSDDFreleased news this morning that its shares had been approved for listing on the Nasdaq exchange. Big news for a company which, to date, was seen primarily as a Canadian venture. The Nasdaq listing reflects the company’s ongoing commitment to the American pharmaceutical market.

A little over a year ago I interviewed Anthony Durkacz, co-chair of FSD Pharma (C.HUGE). It was just before “peak pot” in the Canadian stock market with the legalization of recreational marijuana only a few weeks away.

When we spoke the business plan of most of the players in the Canadian cannabis market was, “Build the biggest grow operation you can, sell to the giant recreational market which will emerge with legalization.” It turned out that this was not actually a formula for a profitable enterprise. In fact, the profits lay in business plans which added real value.

Durkacz told me, “The pharmaceutical market is much bigger than the recreational marijuana market. A single medicine can have a value over 7 billion dollars (the estimated size of the Canadian recreational market) but there are many different medicines for many different health ailments so compared to the recreational market it is huge.”

While big name cannabis companies announced ever-larger grow facilities for the recreational market and saw ever-higher share prices as investors jumped on the bandwagon, FSD took a strikingly different approach. While the company built a grow facility in its Cobourg, Ontario plant, that facility is a modest 25,000 square feet (with plenty of room for expansion).

Where the big-name Canadian cannabis companies rushed to grow product in bulk for the recreational market, FSD was actively exploring the value add opportunities in the pharmaceutical space. Along the way, FSD brought on pharma entrepreneur Dr Raza Bokhari as co-Chairman and CEO. It hired a number of Ph.D.s and Medical doctors to actively evaluate and research pharmaceutical uses for cannabinoids.

In July of 2019, FSD acquired Prismic Pharmaceuticals Inc. a US-based speciality pharmaceutical company dedicated to developing novel non-addictive prescription drugs for the treatment of pain and inflammation. Commenting on this acquisition, Dr. Bokhari said, “the Prismic acquisition represents strategic depth in the vision and mission of FSD Pharma and signals a paradigm shift in the overall outlook of the company. We are relying heavily on the expertise of Dr. Brennan (President, FSD Pharma BioSciences Division), who is a seasoned pharmaceutical industry veteran with substantial experience from working at Glaxo Smith Kline and Johnson & Johnson to navigate us through the various stages of the FDA approval process for drug development, with the goal of eventually making synthetic cannabinoid prescription medications available for commercial use to help alleviate the pain and suffering of patients.”

That paradigm shift included a focus on the emerging American cannabis market with research operations being undertaken in Philadelphia and a number of new American directors with business and political expertise appointed to the Board.

FSD Pharma founding director Durkacz said in our motherlodetv.net interview, “Looking ahead we see the greenhouse, outdoor recreational market as a race to zero. Pharma is going to be bigger than recreational, a lot bigger.”

The FSD Pharma pivot away from recreational cannabis toward pharmaceuticals and its focus on the US as the largest pharma market in the world was, and is, all about having an actual business strategy from the very outset. While the company certainly benefited from the cannabis legalization stock market euphoria, it avoided the mal-investment in grow ops for grow op’s sake which is now such a burden on the Canadian cannabis patch.

Avoiding over-investing in grow ops was a very shrewd strategy. How shrewd? Well, as predicted, the bottom fell out of the Canadian recreational market due to a combination of inept government regulation, wildly dysfunctional marketing and retail rules and, frankly, a huge oversupply of the product. How huge? In July of 2019 just 4% of the marijuana produced in Canada was sold. The rest, 96%, went into “inventory”.

The Canadian cannabis stock market sold off massively and without regard to the quality of the companies involved. Capital has become difficult, if not impossible, to raise for the majority of the Canadian cannabis companies. Even the introduction of edibles has largely failed to make much impact on the Canadian cannabis stocks.

Like many other Canadian cannabis companies, FSD took a huge hit to its share price. It consolidated its shares but it has fallen from a high of $84 a share at the peak of the bubble to $5.80 prior to today’s announcement. But, unlike many Canadian cannabis companies it has been able to access capital raising $4.5 million in a private “premium” placement, the second tranche of which closed November 4, 2019, led by its own management and directors.

Through the turmoil, FSD has remained focussed on its pharmaceutical game plan. So focused that CEO Bokhari was able to announce “During the third quarter, we continued to advance our efforts to transform into a specialty, biotech pharmaceutical R&D company focused on developing over time a robust pipeline of FDA approved synthetic compounds targeting the endocannabinoid system of the human body to treat certain diseases of the central nervous system and autoimmune disorders of the skin, GI tract and the musculoskeletal system.”

“The company intends to initiate Phase 1 first-in-human safety and tolerability trials for its lead candidate, PP 101 micro-PEA during first quarter 2020.”

The company has also reported in November that so far in its fourth quarter it had sold over $260,000 worth of medical-grade cannabis produced at its Cobourg facility.

With cash on hand, a 60 million dollar portfolio of investments in closely related, equally focused, Canadian cannabis companies and direct ownership of an American pharma subsidiary, FSD is poised to benefit from the opportunities in the American cannabinoid pharmaceutical market.

With the announcement of its NASDAQ listing, FSD has moved into an entirely different tier of cannabis companies.

(note: a version of this story appears at Seeking Alpha here.)

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