It’s happening again: FSD Pharma (HUGE.C) is an insider loaded, overvalued, restrictive mess

05/31/2018

What the hell is in the vodka on Howe Street that all of a sudden every new weed deal is coming out tied in knots that enrich the core crew at the expense of everyone else?

We’ve spent three days shining a light on MedMen’s (MMEN.C) terrible go-public structure, which enriches execs at the expense of the company and shareholders, and showers them in bonuses every month, a situation that has led to around $400 million in market cap disintegrating over the last few days.

Sure, In Vancouver we’re used to deals where insiders are loaded with literal penny (or ha’penny) stock before they even announce what’s going into their shell, and we know that’s one of the costs of doing business on the Venture Exchange – that those early guys will blow their cheap paper out and the company will face pressure as a result.

That said, those companies also have four months of trading holds to convince people to keep holding on to their stock, and most execs have their paper escrowed for up to three years, so ultimately the execs will share a common bond with investors because when the share price rises, all of them benefit.

But these CSE deals where the guys bringing the company public hand those execs ridiculous golden parachutes, absurd bonuses, salaries that would take a few quarters of company revenues to cover, and almost the entirety of all voting stock hoarded among themselves, is like something the OTC folks would put a skull icon next to as a warning.

Hey, CSE! Being easier to deal with than the TSX is admirable, but that doesn’t mean I should be able to bring you a fentanyl deal and get a green light to go public. Do better.

FSD Pharma (HUGE.C) has over 1.3 billion Class B Subordinate shares out. I’m sure that seems like a lot of votes, until you understand there are 15,000 Class A voting shares held by insiders, each of which are worth a whopping 276,660 Class B votes, for a total of 4,149,900,000.

Which means the untradeable Class A shares that were divvied up before the company went public will win every vote, for every thing. The CEO could decide he’s going to pivot into human trafficking, and there’s not a damn thing your votes can do about it.

Maybe the execs wanna give themselves a 500% pay rise and a few million in bonuses, just cuz? Instant approval.

Company crashes but the well paid execs don’t want to be fired? They can just vote not to fire themselves.

Hefty acquisition offer lands, but the execs feel like they should get a special bonus for agreeing to it? They can decide to reject the offer if they don’t get a sweetener, effectively killing the deal, and there’s nothing you can do about it.

The company, which has no website to speak of (correction: We found it), put out a news release bragging about how it, unsurprisingly since it has 1.3 billion shares outstanding, broke CSE volume records on day one.

The company wishes to thank all its shareholders and stakeholders for their support to date, which has resulted in a record-breaking launch into the Canadian cannabis marketplace.

Hey, go fuck yourself. With all your record breaking trading volume, your stock went from $0.175 to $0.12.

Why? Let’s have James West from Midas Letter tell it.

In my opinion, participating in a publicly traded entity that is effectively controlled by a minority group is extremely risky, since there is no mechanism to vote down any measure that might be in service of the interests of the minority group, and against the interests of the larger one.

That these structures are permitted to be called “public” companies, is, in my view, a regulatory shortfall. How can you protect your interest if your vote doesn’t matter?

The company says it’s done this because it doesn’t want some unwanted takeover offer to roll in and be accepted against the say-so of the core guys, but that’s ENTIRELY THE POINT.

When you go public, it’s not your company anymore, it’s PUBLIC. We all get a vote if we buy the stock, and if the company is being run poorly, we get to hit the AGM with pitchforks and torches, and vote the bastards out.

Admittedly, there are some companies run in a way similar to what the MMEN and HUGE insiders desire for themselves, so it’s not like what they’re doing is illegal. But those companies with dual class shares are usually monsters like Teck Resources (T.A.T) that have long track records, big revenues and profits, people at the helm who are trusted and respected, and which would become the subject of immense media scrutiny if they tried to pull shenanigans on shareholders.

FSD is not Teck. It’s barely Matica (MMJ.C).

Yes, FSD has a cannabis grow license and a facility they’re working on. That’s nice.

But yet more codas on that; Cannabis Wheaton (CBW.V) is going to pay to have that facility finished, and will receive HALF OF ALL PRODUCT FOREVER in return.

  • The company closed on the purchase of the former KRAFT food manufacturing facility in Cobourg, Ontario, which is owned with no debt. The facility is an existing 620,000 sq/ft indoor facility sitting on a 70 acre parcel of land.
  • It has raised $53,000,000 of equity capital to date, led exclusively by First Republic Capital
  • In October 2017, FSD Pharma’s wholly owned subsidiary FV Pharma Inc. obtained its ACMPR license to cultivate as a federally licensed producer
  • It developed a strategic partnership with Cannabis Wheaton Income Corp. (CVE:CBW). Wheaton will develop the company’s cultivation facility (receiving 49.9% of all cannabis and cannabis related production from the facility) and it is anticipated that at full capacity, 200,000,000 grams of dried cannabis flower will be received by FV Pharma annually.

This is TERRIBLE.

First, anyone who was around the weed scene in 2014 remembers the struggles Canopy Growth Corp (WEED.T), AKA Tweed, had with turning an old Hershey’s chocolate factory into a weed facility. You’ve got decades of vermin and bacteria and inherent structural issues that you’re going to have to turn into a pharmaceutical grade facility with barely a speck of dust out of place, and that’s not cheap, not easy, and sometimes not possible.

The fact that they’ve raised $53 million and have a grow license is nice, but the Cannabis Wheaton deal ties them in knots forever on cost to produce. Whatever your ‘cost per gram’ is, you’re going to have to double it to factor for what’s going to CBW. THIS IS A BIG DEAL.

So not only are you paying for stock that doesn’t come with votes attached to it, but you’ve also bought yourself, effectively, half an LP.

Thankfully, while the desire to bring the next big billion dollar weed win has inspired Canadian junior market dealmakers to make some terrible deals of late, it appears the markets themselves aren’t falling for the ruse.

As we’ve discussed in detail, MedMen has been slaughtered since it went public, and was down again today. It’s sharted from $5.73 in the opening minutes to $4.10 three days later.

And here’s the thing that should scare MMEN investors more than anything else: The shorting hasn’t started yet.

There’s, frankly, not a lot of free trading stock out there, which means shorters have nothing to borrow (yet), and it also means it’s been the insiders that have been selling into the market crush.

When the shorters are able to do their thing, I suspect it’s going to be horrible.

Ditto for FSD: No shorting yet, but there’s sure been a lot of early cheap paper blowing out in the first few hours of trading. Talk up volume records all you want, but the trend has been red, and it was from the first minute.

Again, that’s insider/early investor stock that’s being sold into the slide. Apparently the outlook at HUGE is so great that the people closest to the company are selling up THE FIRST MINUTE THEY CAN.

I don’t begrudge an entrepreneur his or her chance to make some money off a deal. That’s fine. I’m good with that. I’m even okay with guys who get in early because they’re buddies with whoever, and blow out a little stock early against the interests of the investors sticking around. It happens, we know it happens, we’ve baked it into the system and prices and our expectations.

But I have a massive problem with stacking a company’s structure so that there’s far more likelihood that the shareholders will be taken out back behind the house and beaten with rope than there is that the C-suite inhabitants will work to make them wealthier.

MedMen is a bad deal entirely created to enrich three guys. HUGE looks to be the same thing, with maybe a dozen folks getting the benefits.

Compare that to Green Organic Dutchman (TGOD.T), which continued to grow today, currently on a 5x for the small investors it deliberately gathered for its pre-public raise at $1.

To those folks who came to TGOD through us and sat with their money tied up for a year plus in the faith that this day would come, cheers.

And to those putting themselves ahead of the general investing public?

The ones who need to have all the votes so they can’t be removed, or second guessed, or overseen?

The ones who think ‘public company’ means the public takes the risk and they take the money?

I’m the Captain now.

— Chris Parry

FULL DISCLOSURE: TGOD is an Equity.Guru marketing client and we own stock and warrants in it. The others are not, and may also be trash.

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Comments 41

  1. Chris says:

    If you didn’t notice what happened the day of the public offering. There was a 200% push on “HUGE” Massive Interactive Inc the day FSD Pharma “HUGE” went public. That is probably and part of the reason why the stock went from 17 cents to 12 cents.

  2. guy says:

    enough with the gifs!!! i can’t read your well written material due to the ridiculous tacky gifs…holy f#*@

    • Chris Parry says:

      Sure you can. Heck, you can even turn the gifs off in your browser. But you won’t be cause they’re GREAT.

  3. Richard says:

    bullshit fear mongering with annoying cartoons

    • Chris Parry says:

      Is it bullshit when it’s right there in the company filings?

  4. Joe says:

    You come off as somebody who’s been hurt before. Please show us on the doll where the mean man touched you

    Just because you’re concerned about shareholder voting power within the company doesn’t automatically and suddenly mean it’s all a big scary scam.

    This company has made intelligent and strategic partnerships and hired some very talented people in the last week. They’ve got over $50m on hand, already own the facility, already have their cultivation license, and have absolutely no debt.

    This company is going to go very, very far — and so is the stock.

    I agree with the other dude who put it rather well. Bullshit fear mongering.

    • Joe says:

      I would take you guys more seriously had your article not sounded like it was written by an angry, jealous teenager writing for a school newspaper.

      Please don’t try to act like you’re taking the high road. Your sniveling dismissal of this company is evident even in the headline, which is anything but “measured” or responsible.

      Maybe try writing like professionals if you want to be treated like professionals. Write like angsty teenagers, I’ll treat you like angsty teenagers.

      Again, how does it feel to have been so, so wrong? Must feel great. Feels good for me seeing it.

      • Chris Parry says:

        My favourite is when someone who isn’t a professional writer tells me, a professional writer, what I should do to be accepted as a professional writer.
        Three red days in a row now, Joe. Who’s wrong?

  5. ABRAHAM PEARSON says:

    I’m kind of sort of starting to think twice about having bought into fsd and cannara. For all of the big talk that they do , why is it the shares Aint doing as big as their mouths. All the keep talking about is the same property kraft building over and over . It’s also puzzling as to how many other companies claim they own it. And why are so many of the higher ups in the company being relieved of their positions so much? That’s not good for their iimage seeing that they claim to be such a solid company. Time will tell. I hope I don’t get fucked too badly. I wouldn’t be too happy about it.

  6. ABRAHAM PEARSON says:

    I still do believe good things will happen , maybe I’m just a bit impatient sometimes. Besides ROME wasn’t built in a day. It’s not as if any of us should expect miracles to happen overnight. But It would be nice if suddenly these shares went gangbusters in a year or two like CANOPY. I’m also sort of confident in a way because of the fact that CANOPY got involved with them. I went to the big party that they threw in MAY and I was amused at how many BIG SHOTS (AKA ASSHOLES ) were there. Every one of them thought they were a somebody. They were the real ENTERTAINMENT. As they say, BLESSED ARE THOSE WHO RUNNETH AROUND IN CIRCLES, FOR THEY TOO SHALL BE KNOWN AS A BIG WHEEL. I’m an old ROUNDER from way back and I used to supply a lot of BIG WHEELS with their COCAINE. it quit the business because most of the fucking so called BIG WHEELS stiffed me for a lot of money. Funnily enough a lot of those same BIG WHEELS happened to be there at the party but I just pretended I didn’t even know any of them, which in fact maybe I really didn’t know them for real because I allowed them to screw me out of almost half a million bucks. OH WELL , LIFE GOES ON. I only hope to GOD that I will recoup some of my many LOSSES through these wonderful stocks. CHEERS

  7. ABRAHAM PEARSON says:

    For some strange reason , there just seems to be so many more bums out there these days and there’s no shortage of them. FRESH BUMS ARRIVING DAILY. Yet nowadays many of them can fool us into thinking they are actually real people because they all seem to be able to drive ASTON MARTINS and BENTLEYS . I saw so many of those high end cars at that party and I bet a few repo company’s would have had a HEYDAY towing away some of them if only they knew about that party. TOO BAD. maybe next time there is a party down there I will put the word out so they can be there with a bunch of TOW TRUCKS. I enjoy watching BUMS standing there watching their ride being towed away. Of course they would tell everyone that the piece of shit wouldn’t start and they had to have it towed to the dealership. And that’s it ,I WILL NEVER BUY ANOTHER ONE OF THEM. I love my 2008 DODGE GRAND CARAVAN. I own all of it and it never lets me down. I can afford to buy a brand new ROLLS ROYCE if I want but that’s not me. however I am buying a brand new one for my 81 YEAR old MOM, and it’s not because she even wants one. It’s only because when I was 7 years old I told her (I LOVE YOU SO MUCH AND ONE DAY IM GOING TO BUY YOU A ROLLS ROYCE) I’m now 60 YEARS OLD so it took me 53 years to come good with my PROMISE .better late than never,, THEY SAY.

  8. Leonard says:

    Wow what a great write up,must have taken a long time for you to put together.
    Are you the one’s who played this stock short. Like 45, million.
    With so much to lose a write up like this would not be an unexpected effort from one that is facing a call.

  9. Leonard says:

    I would normally consider the fact of some or even most of what is written. Problem is that the people I spoke to knew more about the people who were getting involved. Plus the fact the CEO has a track record of past companies being developed and remaining successful. The team and the hired people are coming from the top areas in this business.
    Weaton financial is bearing the brunt of all costs. They are worth the return, and they are the ones who are going to add money for acquisitions going forward. Who in their rightful mind would not want this kind of deal.
    This company is without any debt.

  10. Liam says:

    Well.. looks like you were wrong lol. 0.38 for HUGE today. My brother’s up 200% in 3 months; enjoy your 20% over a year.

  11. Joe says:

    Hey, so just wanted to take the opportunity to point and laugh at you, and make sure anyone seeing this knows how much of an imbecile you are.

    You laughed when it was at.. 12 cents? 17?

    Try 70, buddy boy. Bet you wish you’d bought in.

    Lol. What a joker.

    • Chris Parry says:

      It’s been a nice rally, but it’s not alone. And holding those gains is what’s going to be important. Everyone is correct at a singular point in time, and everyone is incorrect at another.

    • Lukas Kane says:

      Hey Joe,
      You sound petulant and aggrieved. We are not sure why. If you or any of your friends or family own HUGE stock – the Equity Guru staff rejoice in your stock-picking prowess. If our end game was never-to-be wrong – we would do what almost-every-other financial site does: employ cushioning idioms like “in all probability” or “it is highly possible” or “many pundits believe”. But that is not in our DNA. When we like something, we shout from the mountain tops. Likewise, when we think there’s a problem – you’ll hear about it. After the original negative HUGE article, we interviewed HUGE Director Anthony Durkacz and stated, “Durkacz knows his shit. Here is one of the best interviews we’ve done in a long time, in which good questions are answered with good answers.” Next time something great happens to you, Joe, just breath in and out. Enjoy it. Snarling behind your keyboard doesn’t accentuate your victory – it taints it. We wish you continued success in the stock market, and in life.

      • Pasque says:

        Hi M. Kane. Do you ask the question about the cost of production for cannabis from the CBW deal (their part) thank you

      • c to the j says:

        Mic Drop!!!!

    • Facts says:

      I just love this kids post! Its Nov 22 2018
      And huge is looking to be heading to .20 by mid Dec.

      Now the world knows how much you are. Good job tho.

  12. Bob_Telus says:

    LOL l feel like all these guys bolstering this massive push to the moon have no idea how the actual market works. Wow, good on you and your 200% return, you just gambled is really all you did. Why didn’t you just go play roulette and place 1000 on green, your odds are better than trying to gamble the 400+ cannabis companies readily available.

    • Chris Parry says:

      Yep. A billion dollar market cap seems a tad.. overinflated. But hey, they’re not the only ones.

      • Ray says:

        Well I guess CGC at 15 Billion market cap, or Tilra or Aurora or Aphria are all good solid companies with large MC. How will CGC be able to have revenue of 15 billion to justify it’s stock price? Why don;t you call them out? Or are you afraid to go after the big boys.

        BTW, you spoke to the FSD CEO and he explained the reasoning for the questions you had. I guess you didn’t believe him because you still have this page up and running with no changes.

        • Chris Parry says:

          Oh, I do talk about how those big boys are overinflated all the time. Is this the only article of mine you’ve read?
          I left this article up because, if Jim wrong, I’ll own it. If I changed the article, you’d accuse me of covering my ass.

          • Ray says:

            You wouldn’t be covering your ass but instead tell the truth after learning all the facts. Btw, you could have tried calling the CEO before writing the article to start with! You could amend the page and say that after speaking with the CEO I have new information and insight. This should be done on the original page where you bashed them and not on other pages. Bashers and short sellers are constantly referring to this page to help their cause. Things have changed since then so you should say so!

          • lak says:

            Interesting comments by all. I’m a bit of a green horn so indulge me if you would! If the company insiders have exercisable options in the millions of shares and the stock price is below their strike price don’t they need the stock to appreciate up to or past this price for profit to be made.

          • Lukas Kane says:

            Lak, you are 100% correct. Good work for a “green horn”.

          • Facts says:

            Chris no good deed goes unpunished. You warned em all!!! EVERYONE.
            Weeds a giant mudslide now.

            Canopy! Same price now as ??? June???

            Mad or millenial? Lmao or just plain mad millennial “wheres my trophy sir your promised a participation trophy!! Where is it. Haha

  13. Morrison says:

    HUGE had 573,506,871 shares issued at $12,794,962 or 2.2c per share.
    All placement rounds were done around the 10c~ range
    Overall weighted cost average of issued share is around 4 cents

    HUGE announced a 40 million share offering to their director for getting them listed on Nasdaq..

    Their expansion is going to come online in line with every other LPs expansion, the shortage of supply is only current let alone the 49% stream of product they owe to CBW / Auxly.

    Take a look at their last interim financials – https://www.sedar.com/FindCompanyDocuments.do#

    FSD Pharma Inc.

    The rally isn’t warranted to solid fundamentals or financials, it’s retail speculation and trader manipulation, much like Tilray on Nasdaq when it went up to $300.

    • Lukas Kane says:

      Morrison, today HUGE announced that it has broken ground on its heritage museum and flagship dispensary in Cobourg, Ontario – and it’s another green day for the stock. At Equity Guru, your concerns are registered as valid. However, where you see rain clouds, neophyte retail investors see rainbows and sunshine.

  14. Leonard Lipstein says:

    Okay Perry, you got my attention, the sky is falling apart and the world is about to be hit with the sky. That’s crushing and we are all going to die. Just dug a hole in the ground, climbed into it locked the hatch so it wouldn’t open up for another 3 years. Oh shut I’m fu..cked, forgot the water and food. I’m going to die. Your statement calls for the complete decimation of marijuana production companies. Your point is so off, as you are assuming that the companies are only going to provide recreational, versus medical medicine. Huge is really a medical marijuana medicine products industry, the framework you are playing on is valid to a point on its own merit. But in this case, most people like yourself only thinks and sees what they know from their own limitations of life learnings. I think it’s more as in my life profession and with the exposure of my staff and people in my industry find exactly that. Limitations of their own mindsets to see beyond their own beliefs and learnings. It’s funny how I am now taking time to Express this here as I just recently had this conversation with one of the people in this industry saying to me what I am now saying to you.

    • Chris Parry says:

      Confused. Are you suggesting that, rather than basing our opinions on what we know and have experienced, we should base them on… faith?
      Not a strong investment strategy.

    • Facts says:

      Lenny come on son. “life learning”.
      Your saying medical side is worth more than recreational?

      Are you 20? Phamaceutical companies have been making billions and billions a year for how many years? They take the worlds money. Banks borrow it. Big pharm takes it. Now you need think this through.

      If big pharm found better PROFITS in medical marijuana wouldnt they have sold it a century ago? No. They keep it illegal so they make more profits. Think it over seriously there is no big profit in medical marijuana. Never has been never will be.

      Sure it may do the same healing as prescription drugs. But we dont make bake and cook our own prescription drugs at home now do we?

      Marijuanas legal in canada. Where are all the youtubes of oil and cancer patients now saying they overcame their stage 4 cancer? Where are tv ads about cancer cures? Wheres that guy from the east coast who claimed to cure peoples cancers with marijuana???

      Seriously think it through. Know anyone who gets Medical marijuana? How much do they pay for it? Tell me. How much does the gov pay for it to give it away free? Tell me again.

      Therefore recreational is the cash cow for now.

      Do I think huge will ever be anything?

      Sure! 10 years. Sure. $5. When their converted to a hemp bottle making factory and saving the world lol.

      But chanting a .17cent stock to .95 cents and acting like wizards. Lol come on.

      As far as im concerned huge is a shell. Just a shell with promises. Kinda like the ole dot coms back in the day.
      Everyone i know who owns it only bought it cause they “drove by the building” and said ya man (puff puff). Its real bro.

      Lol. Goodluck

  15. Facts says:

    Haha. LOVE THIS WRITE UP. I
    TS MY AGE GENERATION.
    LOVE IT.
    KIDS ARE SO EASY TO TEASE TODAY.
    NO TROPHIES FOR PARTICIPATION IN STOCKS KIDS !!

    YOUR “HURTING THEIR FEELINGS” with solid STATS. which they dont read. They dont even read manuals.

    KEEP BUYING ALL STOCKS IN GENERAL KIDS YOU DONT KNOW WHAT YOUR DOING. AND THAT LINES MY POCKETS NICELY.

    HUGE WAS A PUMP AN DUMP. EVEN THE COMPANY KNOWS IT. THEY DUMPED IT BEFORE YOU DID. EVEN WHEATON NEEDS WRITEOFFS.

    HUGE IS THAT WRITEOFF.

    ITS NOV AND THIS SIVE WILL BE AT THE SAME PRICE THIS ARTICLE WAS WRITTEN BY CHRISTMAS.

    AWESOME HEADS UP. I DONT EVEN OWN THIS. BUT THIS IS STRAIGHT TO THE POINT RUDE AND EFFECTIVE.

    PS THE GIFS ARE TO HELP DRY YOUR EYES HERE KIDS. HE FELT SORRY FOR YOU WAAAAAAY BACK.

    BUT NOPE YOU WENT AHEAD AND BOUGHT MORE. HAHA. THEIR GONNA SPLIT THIS THING AND GET IT ON THE NASDAQ. DONT PUT THAT BOX OF KLEENEX AWAY JUST YET.

    Ps Chris im signing up. I like to be told the straight truth about everything this kinda thing is has no sugar added. Which is nice for ince in this fake world we live in.

  16. Facts says:

    My last post here.

    Marijuana stocks flew on the heels of cryptocurrencies last fall.

    Never forget this.

    When crypto tanked, they searched for a market that was regulated to BET on.

    That would be marijuana stocks.

    And those with tight money were presented with huge this summer a company with how many shares available??? How many????

    Never forget this when investing in any marijuana stock because its EXACTLY what happened.

    Happy New Year!

    Find a manufacturer of hemp
    Theres better uses for pot then consuming it.

    Look up henry ford hemp car on youtube.
    Thats the change the world part of legalizing marijuana.

  17. Facts says:

    Heres the calibre of investors in this stock
    So you all know. Nov 27 2018 from a forum elsewhere.

    “Not sure why all those asks are at 0.265 now. Why not mess it all up and cancel those asks and put in a 36 cent ask and force the bidders to bump up the bids. Ugh, looks ugly already”

    This should sum up whos in this stock.
    Crypto person obviously.

  18. Mike says:

    hi chris , this was a great read. I hope you do a follow up article to outline the fraud FSD has done now. You were right completely. Now with time the truth has shown its ugly face from the ceo to all involved on the board. Ceo to Anthony, would love to know ur thoughts.

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