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December 07, 2022


Investment information for the new generation

AUDIO: FSD Pharma (HUGE.C) director calls me up, pledges to answer tough questions

Note to public company executives: When a journalist goes out there with a story about your company and calls it terrible, the correct response is not:

  1. Accuse journalist of being a short seller
  2. Accuse journalist of working for a short seller
  3. Accuse journalist of being a hater

The correct response is:

4. Call him up, tell him where you think he’s got things interpreted wrong, and happily take him up on the chance to speak about it on tape.

Anthony Durkacz, who is Executive Vice President of Toronto’s First Republic Capital and also a director of FSD – and one of the company’s largest shareholders – called me earlier this week and wanted to talk about this:

The company [..] 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.

Actually, he more specifically wanted to talk about this:

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.

And some of this:

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.

“You’re not wrong,” he said to me, “Though, also, you’re actually wrong.”


So in the understanding that every take on a public company has an equal and valid counter-take, I asked if he’d like to talk about it publicly. He agreed, and I thought I had him bang to rights.

But a funny thing happened: Durkacz knows his shit.

And here, my friends, is one of the best interviews I think we’ve done in a long time, in which good questions are answered with good answers, and everyone is, maybe… right?


— Chris Parry

PS: We’ve provided a transcript below for those who don’t want to throw on the headphones for 30 minutes.

FULL DISCLOSURE: We have no commercial connection to FSD Pharma, nor any stock in the company. Oh, and it’s moved up from the $0.075 low it hit after our article, to a much tastier $0.18, good for a $230m market cap. Fair enough.

Chris Parry: So tell me about FSD.

Anthony Durkacz: So FSD was founded about four years ago with one intention in mind – to be the largest indoor legal cannabis grow operation in the world. It was founded by Thomas Fairfull, the current CEO and chairman. I guess about 18 months ago we started to become a little more active in the space. It did take a while, it took almost just over three years to get Health Canada’s license which did happen on lucky Friday October the 13th of 2017.

After that we proceeded to raise about 53 million dollars in equity financing, straight shares no warrants. And since then we’ve been building, we’ve built out 25,000 square feet. I made an announcement about a week and a half ago with our partner Cannabis Wheaton, now Auxly, to build up the next 220,000 square feet. We have a strategic relationship in Montreal with another giant facility much like our former Kraft plant which is about 620,000 square feet in size. Our Kraft plant is approximately 630,000 square feet in size with an additional 40 acres of expansion land. All of that is property that shareholders of FSD own today.

Chris Parry: There’s a bit of a shift going on in the weed space. Growing in great quantities is great and all but maybe there’s more margin to be had in ‘what happens next’. What are you guys doing on that front, if anything?

Anthony Durkacz: I would agree 100 percent that is accurate. This is a commodity. So at the end of the day its a race to zero effectively, that’s what it is. Especially on the flower side. From the flower perspective, we look at it as indoor versus greenhouse or outdoor now because as of October 17th there are some changes that are coming on the outdoor side. So I think on the flower side, and we’ve seen this in the recreational states in the U.S., where one pound of greenhouse vs one pound of indoor, even if it’s the same strain done by the same growers, fetches a much different revenue per pound on the indoor.

Building of those brands, those consumer-packaged goods are going to be where the margins will remain. Last I checked, more than 20 million square feet of greenhouse is expected to be built over the next two and a half years in Canada alone. That’s a tonne of greenhouse. How much indoor is being built? I mean the indoor is a much smaller amount because it’s a lot more costly at the end of the day, and more costly than to develop that infrastructure, especially if you want to be in a location that’s close to one of the major Canadian city centers.

Chris Parry: And so from the pharma side do you see it as being an indoor game?

Anthony Durkacz: The pharma side is all about consistency at the end of the day. So from a flower perspective absolutely. Because in Canada with four seasons you cannot repetitively grow identical flower every single cycle.

Chris Parry: So you got a stack of ways to go about the share structure in light of the Medmen debacle. Having a share structure that includes super voting is a little bit hairy. You explain it to me as there’s a reason to do this. What’s that reason?

Anthony Durkacz: If I was looking from the outside, in the past I would have thought the exact same way. Dual structures – that’s crazy, doesn’t make sense. So here’s what I wanted to clarify.

Number one, this dual share structure was inherited. Ultimately when going public those class A shares that contain the vote had to be turned into what they call super voting shares and those super voting shares carry no dollar value. So it’s not like even if you have one class A which turned into something like 230,000 votes. Those 230,000 votes isn’t reflective of a value of 230,000 class B’s. So, in fact, the total dollar value that could be assigned is something minute like fifteen thousand dollars or something like that in total, right. So that structure if someone was to look at it and say oh my God that one super voting share class A share turns into 230,000 super voting shares but it doesn’t turn into 230,000 class B shares. So from the perspective of what does it mean?

It means that between myself, the founder and the executive vice president the three of us can make material decisions for the company literally within an hour and I think in this industry because there are going to be a lot of mergers and acquisitions and very material transactions that are going to have to happen just for people to be able to survive in this fast-paced industry. That allows us to move faster than any of them.

Chris Parry: Understood, right now. But if that were the case, if you’re looking at ways for us to build the company quickly right now, while we have to strike while the iron is hot and things are moving quickly. I can understand that. Why not put a sunset clause on that? Why not say that this is the case for the next year, two years, three years?

Anthony Durkacz: So that, if that’s what even a sunset clause. The reality is, if and when, and there’s still debate, but when we finally saw the first what I’ll call real institutional participation in financing, in that last Canopy financing right, the 500 million or 600 million dollars. That was BMO led with institutions leading the way. That really has changed the dynamic because before that really there was not a lot of true institutional participation. Really the driver and still the driver, the majority of the driver continues in the marketplace and cannabis to be the retail investor. Right? I mean look the average retail investor – in any microcap that they invest in, really how much say do they have? Right?

Chris Parry: Well, they have very little say until they deal, until the wheels come off a little bit and they get together with a few larger investors and exert their will. We see that in proxy wars all the time. But that’s still no reason to just sort of take it away from them. We very rarely require fire departments but we want them there, just in case.

Anthony Durkacz: I didn’t create it that way. And I’m not saying it’s the right way to do it. Once I got involved, and I thought about it more, there are going to be cases here where the reality is that those super voting shares will have to dissipate or there will have to be a change that will happen tending if the right acquisition comes along. That would be something that will have to happen, I think, if the right institutions wanted to do a proper legitimate financing that we believe is in the best interest of shareholders to undertake. I can’t see that any legitimate institution will allow those super voting shares to remain. But yes ok – put a blanket sunset clause like this will be done within two years. I don’t know if in two years we’re going to get that offer, that opportunity or that acquisition within that two-year period of time and you wouldn’t want to dilute that whole theory that we can act quickly in the best interest of shareholders because look we do have a very big float I mean just the float alone of Class B’s is 1.1 billion shares that are in the float free trading and right now when we started this we had over 4700 shareholders the day before we went public. If you look we’ve almost traded one billion shares in less than six weeks right.

Chris Parry: Well, but you have a billion out.

Anthony Durkacz: Exactly.

Chris Parry: Trading volume is a tough thing to crow about when you’ve got more shares out than anyone else.

Anthony Durkacz: Yeah, of course.

Chris Parry: Your share price is moving up to be fair. Certainly, when things started off it was heading the other direction. Do you think that the super voting shares worked against you in the early stage?

Anthony Durkacz: I don’t think so. I think in the early stage we saw the weak hands come out because when you look at the capitalization of the company right, and the cap was an original round when I got involved which is two cents a share, a second round that was done at five cents a share and we raised 13.7 million dollars at that level. And at that level, there was a forward split enacted at that time of 1.33 shares and then we ended up doing a nine cent financing for about 37 million dollars. Approximately. Might be a little bit more. But in the end, that whole total should add up to about 53 million. In total that was the entire amount. But in this case, I have literally all of my family, all of my friends and all of my clients in this deal so I ended up..

Chris Parry: Balls to the wall.

Anthony Durkacz: And I am the single largest security holder of the company today currently. Me being an insider, people can see what I own and what I do, not think I’m from the recreational market. It’s going to be an exercise of branding, right. So…

Chris Parry: Sure.

Anthony Durkacz: The thing is if you go in to buy booze, you go in there, do you want to drink Grey Goose or Smirnoff? And it’ll be dependent on that. Brand building still has the same challenges, you have to have quality, and most importantly consistency right. I mean we want to be sort of like a cannabis wonderland, where you’re going to have your flower, but more than flower, more the real margins will end up being determined in the vaporizers, edibles, beverage market and nowhere better to make those edibles or beverages than a former Kraft plant.

Chris Parry: Well maybe I must be Devils Advocate here. Rifici was involved in a deal called Tweed back in the day that had a Hershey’s plant that they took over. And, memory serves, it was a bit of a rehab assignment getting that thing to the point where they could actually realistically use it.

Anthony Durkacz: Yeah. And today it is the largest cannabis company by market cap in the world.

Chris Parry: Yeah but that facility is not what fueled that.

Anthony Durkacz: You know that facility is what started it off. So these are fast moving industries, but that is exactly how Tweed started. They took over the Hershey plant.

Chris Parry: They kicked out the rats.

Anthony Durkacz: There’s no question there were problems. That’s why we made Chuck our partner because he and Brad McNamee who’s their head engineer both were at Tweed, started at Tweed, is the co-founder of Tweed. And they, better than anybody, know from scratch there is a very big learning curve there. So we have the positives and the advantage here of utilizing their already existing knowledge in that learning curve, to convert an old food grade facility into an indoor grow-op.

Chris Parry: Let’s talk about the Rifici deal, the Auxly deal. There are those out there who think that the streaming option is a good one, it helps young companies get finance without necessarily diluting the stock. The other side of it says well, that you’re diluting future revenues. What attracted you to this streaming deal as a means of getting things up and running?

Anthony Durkacz: Sure. So number one, part of what I had mentioned – Chuck and Brad are two people in this world that have the experience that not many other people have, converting an old former food grade facility into a indoor cannabis grow operation. The streaming side of it, and just to clarify – There was 25,000 square feet that we were building, that we’re operating, that we’re currently growing in today – is all FSD Pharma. The 200,000 square feet that construction begins this month. That is going to be part of that streaming deal. So that streaming deal comes with, number one, Cannabis Wheaten/Auxly has to finance the build. They have to construct it. They effectively give us a turnkey operation to come into, and I mean their ability to construct, they’re involved in so many different deals, they have so much more experience as a team than we do and really than most other people do, so they give us a turnkey solution to go into and operate under our FV Pharma license. We then get all of our costs returned to us first plus a margin of 10 percent cent OK. After that, it gets split. We keep 50.1 percent of whatever product is left after our costs and our 10 percent is granted to us and then they get the other 49.9 percent. Further locations only that they construct, build and give us a turnkey operation to, we get that split. But no matter what, FSD Pharma, in the world of what is a commodity and ultimately will end up being like growing tomatoes or cucumbers, we still are guaranteed a 10 percent margin no matter what.

Chris Parry: Right. Assuming that the cost of cannabis goes to near zero, that’s a great deal. If the cannabis prices hold up which I’m guessing is what Auxly is betting on, then it becomes a good deal for them.

Anthony Durkacz: Absolutely. Look I think it’s a good deal for both of us because when I first got involved what I was thinking was who really could build this project out and Cannabis Wheaton are one of the few, and we ended up striking what we believe was a fair and equitable deal. I think if it was left up to us alone to build this out we don’t have that experience quite frankly. So we would be fraught with probably incurring more mistakes, incurring more costs, taking more time. And to me I think we are in a race in this industry. The advantages clearly overcome any potential cost in the future. But we as FSD Pharma do not have to go and raise any more money to build. In the industry that’s a big big challenge because if you’re going to go committing to building, whatever, 2 million square feet of hybrid greenhouse and you’re committing 290 million dollars to do that project. If the price of cannabis goes down, and ultimately the price of cannabis goes down, the price of oil also will go down. Of course right? Oil will also be a commodity with the flowers. If that ends up being the case those capital costs and those spends end up being not the right strategic investments.

We have, I think as of June 30th, we have about 30 million in cash. We have about ten million dollars worth of early industry investments that we think will outperform, in general. We own this entire property with zero debt, our real assets in the company are there and I don’t have to go back to the market and raise more money today because I need that 220,000 square feet, as announced, has an expected budget of approximately 55 million dollars. So if we’re going to do that at FSD Pharma by ourselves we have 30 million in cash today and it means that we would have to go back to the market to raise at least the other 25 plus right. That would put us at a disadvantage, especially if we go into a negative market where either the money begins to dry up or stocks begin to go down in value.

Chris Parry: So it’s a hedge against the market basically eating itself.

Anthony Durkacz: Exactly. We’re hedged both ways. The beauty is we sit in a great asset position, where we don’t have to spend it. It just allows us to focus more on the strategic investments and opportunities.

Chris Parry: But it also puts an emphasis on the front end of your company while putting a lot of elbow into growing weed, to find a way to make more money off the stuff that’s left for you.

Anthony Durkacz: Exactly, and that’s the beauty of it, because what’s left, that 50.1 percent that’s left for us after we’ve already generated 10 percent margin on the operation, is zero. So guess what my flower, guess what my oil is going to cost me? – a lot less than buying it from anyone else in Canada.

Chris Parry: True.

Anthony Durkacz: And then, of course, you have this movement that’s saying why don’t we go to Colombia to do the greenhouses and stuff. Absolutely. If you’re going to grow greenhouse you might as well do it in Colombia. Look at the Rose market. The Rose market tells you that. Why? Because on the equator these things go straight up, the canopies grow straight up. And that’s all true. But there are a few realities when you think about that. Are they really going to be able to supply Canadians?

Number one, there has not been one export license granted by the government of Columbia. Not one. Nobody can export anything out of Columbia at the moment, and may not be able to do so. Number two, will the Canadian government allow this large-scale importation of cheap product which would definitely just completely disintegrate our multi-billion dollar industry that’s been built in Canada? Look, I can’t see that. So, I think we’re going to be stuck kind of buying Canadian for the next few years and that buying Canadian, in our case, that 50.1 percent costs zero.

Chris Parry: Sure. So I think you’re right on this, that over the next couple of years the agriculture side of marijuana in Canada is going to be squeezed tighter and tighter. That’s going to put Cannabis Wheaton/Auxly in a bit of a situation, going forward.

Anthony Durkacz: Well, look. I can’t comment on Cannabis Wheaton/Auxly because I’m not management or on the board of directors of them.

Chris Parry: But you’re betting that they’re making the wrong call. Essentially.

Anthony Durkacz: No we’re not betting that they’re making the wrong call.

Chris Parry: You’re going to benefit if the market swings the way that covering your costs becomes all important because the margins are squeezed then you’re off to the races exploiting your product for a higher margin. On the other side of that, Auxly’s going to be struggling to repay its investment. The thing with these royalty deals is someone’s a winner and someone’s a loser. It’s very rare it’s split right down the middle.

Anthony Durkacz: Which is true of any business relationship. I think in the case of Auxly, we did not have internally the people with the experience to build the Kraft plant out in a way that I would say was viable or legitimate, especially trying to pitch that to the investment community.

Chris Parry: Sure.

Anthony Durkacz: So with Chuck and Brad and Hugo there that changed that whole aspect. So for us, having that relationship with them allowed me to go out and raise 53 million dollars straight equity, not one institution participating, right, and no warrants. And that was because people believe that Chuck and Hugo and Cannabis Wheaton do have that expertise and that knowledge, and know how and it’s true, they do. A lot better than pretty much everybody else. It’s not only streaming that they’re doing, they’re involved in so many other areas. I’m pretty sure I saw they had a deal with a beverage company and with Dixie Elixirs. I think Cannabis Wheaton’s got a very very wide sort of array of different businesses within the industry so it’s not like they’re solely betting or investing in streaming deals where they’re only growing flowers, being everything. I think they’re pretty well diversified across the spectrum, across the industry. They’re a lot more than just a cannabis flower streaming company.

Chris Parry: If you were having your time over again, would you have done this deal exactly the way you’ve done it?

Anthony Durkacz: Yeah.

Chris Parry: Fair enough. The thing that really makes me concerned for a lot of the new weed companies and right now there’s a stampede of them, right. You’d have to go back to 2014 to find a time when more new pubcos are hitting the market in this space. You’d have to go back that far. There’s a lot of plans and there’s not a lot of buyers. Emerald’s going to build a million square feet, and four million square feet and Tweed’s going to eight million and everybody’s gone for their ‘we’re going to build this many million square feet’, but when you get to the ‘what are you going to do with it’ when that’s all producing and you’re making slim margins on it, there’s not a lot of business plans on that side. Give me the FSD ‘we’re different on that front’

Anthony Durkacz: 100 percent. Number one, I would not build one square foot of greenhouse I’ll tell you that right away. And I’ll tell you before the whole theory was: How’s the small guy going to compete with the Canopy’s and the Aurora’s and the Aphria’s of the world in the greenhouse space? They’re not. Anyone that’s going to build 200,000 square feet of greenhouse has no chance to stamp those guys out. There’s absolutely zero chance. For that reason alone, we wouldn’t invest a dollar in building greenhouse. Now, what I think has really changed in my mind is when that announcement came and C45 was passed and there were these changes. If outdoor is allowed on a commercial scale that kills the greenhouse market in Canada. Why? Because you’re going to go out one summer, grow the stuff for zero literally, right? You’re not then putting the capital in to effectively get a similar quality which is not going to be a flower you’ll be able to sell directly to consumers because they’re not going to want to smoke the outdoor, necessarily, but then you’re going to just take that and convert it into oil. So the oil that comes from the outdoor vs the oil that comes from the greenhouse, depending which method of extraction you’re using, you can create the exact same oil. I would say that that outdoor decision changes the game tremendously. There would be nothing to me that would make me want to even consider spending one dollar in capital to build any kind of greenhouse or hybrid greenhouse.

Chris Parry: What’s interesting I think when I take a company and pick it apart and find all the things that the naysayers will say nay about, a lot of the time guys will just stay quiet in the background and hope that it washes away. But you contacted me when I put out my piece that had a few fuck you’s in it, and said let’s talk I’ve got answers for you. And respect man, you’ve got some answers.

Anthony Durkacz: It’s a great thing that. In fact, I want to see people that are going to criticize us and tell us what we’re doing wrong so that we can make sure that we do not do the wrong thing, but do the right thing. So for me, it’s actually important to get feedback of what people are thinking, and sometimes it does take some clarification, and I would be the exact same way. I would say, fuck that float, that’s way too high, that’s insane. That dual share structure, that’s insane. And I think that would be human nature to any Canadian investor, for sure. Without even a doubt. So that is accurate and that was correct. But there is a sort of other side to the rationale behind that, which I just wanted to make sure at least we were telling the way that we saw it, what we were thinking of doing.

Chris Parry: Sure

Anthony Durkacz: In the micro-cap world, most companies are run completely improperly or for the wrong reasons which is a detriment to the entire industry, for some of the really bad apples who are sort of finding their way through the microcap space. I think having criticism is a necessity to maintain and ensure that we as management on the board of microcap companies are looking at this and thinking about it, and also understanding that if we are doing something wrong or that there is something that we should be doing better at, that we do that, right. In fact, I want people to criticize, I want this criticism, just so that we can understand where people are coming from and to make sure that we are addressing everything properly and accurately, and doing what the investment community wants us to do.

Chris Parry: Yeah, for sure. I sell this to client companies and potential clients all the time as if nobody says anything mean about you, then you’re leaving that to the message boards and the short sellers. If nobody ever answers those questions, then you’ve given away the conversation. And it’s one that a lot of companies learn the hard way, to just stay quiet and just stay above it all means actually being below it all.

Anthony Durkacz: Sure. And because I’ve been involved in 160 deals in the last four years in the microcap space in Canada, I hope that I’ve learned something along that way. And I’ll take everything that I have learned and everything that I still have to learn. I’m going to put it to our absolute best for FSD Pharma because, like I said, I’ve got all my family, all of my friends and all my clients in. For me, it’s too huge to fail. I have no choice, I have to do what’s best for everybody and we have to do what’s right. And I think this is just such an amazing opportunity. Where you see the end of a prohibition coming and really too, our focus more than the recreational side I think is kind of a low hanging fruit for the next three years, is really on the pharma side. The pharma side, I think it’s going to be the most exciting frontier over the next five to ten years which I’d love to be a big part of in the future.

Chris Parry: You get a lot of market guys that have put 100-something deals together and they’ll come out with a company and tell you ‘You know what, this is the big one.’ And then four months later they’re calling up and saying ‘I’ve got a bigger one’. Is this your legacy piece? Is this the one you’re going to cast everything else aside and devote yourself to?

Anthony Durkacz: So currently we’re involved and we have certain engagements. But generally going forward, I guess time will tell us if this is the legacy piece. In terms of my personal and family investment, this is our largest direct investment. I’ve invested over seven figures cash into FSD Pharma personally, in my family, putting in my friends and clients. We’ve raised about 53 million in less than 18 months.

Chris Parry: It’s a pretty big commitment.

Anthony Durkacz: It’s a big commitment. So that’s First Republic’s largest deal ever. From that perspective, it is our largest deal and I think there’s a tremendous amount of potential and opportunity here and in many ways I’m on the hook that’s because if I don’t I’m going to have a lot of unhappy family which is not going to make the holiday dinners a pleasant experience.

Chris Parry: Not at all.

Anthony Durkacz: You know the friends ; I mean they’ll fall off and I won’t be getting called out to the bar ever again. Yeah for me it’s too huge to fail and so this is our largest deal. Will it be my legacy deal? Only time will tell.

Chris Parry: Well we’ve been chatting for quite a while and you’ve stood up and answered all the questions, so I feel like you’ve got me back on the fence.

Anthony Durkacz: Well I thank you for respecting that I did reach out to you and giving me a shot at least to provide my side and the rationale behind what has happened and why we did it. And again if there’s ever any criticisms, I want to see them. I’d rather people tell us what we’re doing wrong because that’s more important than doing the right thing, to understand where you’re going wrong.

Chris Parry: Rob Anderson just got a ride on Twitter from people who claimed he didn’t have a heart attack, that he was fleeing for Panama to save on taxes. The market does not let up.

Anthony Durkacz: If someone does say something or write something about you that’s inaccurate or untrue or you have a different point of view it’s important to…

Chris Parry: Stand up.

Anthony Durkacz: Yeah.

Chris Parry: Well I’ll let you get on with your day. Thanks very much again, this has been great.

Anthony Durkacz: Thank you Chris.

Chris Parry: Let’s talk again soon.

Anthony Durkacz: Thanks for having me discuss this with you and respectfully and honorably responding to me, that doesn’t happen all the time.

Chris Parry: Likewise. Alright, talk soon.

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