FSD Pharma Inc: The Best Under-the-Radar Cannabis Penny Stock

FSD Pharma Inc
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FSD Pharma Inc

FSD Pharma Inc (OTCMKTS:FSDDF, CNSX:HUGE) is one of those cannabis companies that has been operating quietly in the background, getting everything it needs to become one of the largest dried cannabis producers in Canada, which right now also means the world.

A licensed producer of marijuana under the Access to Cannabis for Medical Purposes Regulations (ACMPR), FSD hopes to receive its sales license and be operational in the first quarter of 2019. That would finally put the company on the cannabis map.

Going forward, management said it expects to move 75%–80% of the company’s business into biotechnology, since it believes that medicinal biotech is the most lucrative space in the cannabis industry.

FSD Pharma Stock

While many investors may not have heard of the company, HUGE stock is actually one of the most actively traded stocks in Canada.

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The company made history on the Canadian Securities Exchange (CSE), where it broke the all-time record for volume in the first day of trading. (Sources: “History Made, FSD Broke All-time Daily Volume Record,” FSD Pharma Inc, May 31, 2018.)

HUGE stock then went on to break the all-time records for weekly and monthly volume traded. (Sources: “FSD Pharma breaks all-time weekly volume trading records,” FSD Pharma Inc, June 7, 2018, and “FSD Pharma Breaks All-Time Monthly Stock Volume Trading Record,” FSD Pharma Inc, July 5, 2018.)

In less than two months since it began trading, HUGE stock also broke the yearly volume traded record. (Source: “FSD Pharma Surpasses One Billion Shares Traded and Makes History With Annual CSE Volume Trading Record in Less Than Two Months,” FSD Pharma, June 20, 2018.)

FSD Pharma Financials
52-Week High $0.88
52-Week Low $0.07
Market Cap $359.5 million

(Source: “FSD Pharma Inc. (FSDDF),” Yahoo! Finance, last accessed February 7, 2019.)

FSD is also taking steps to move its stock listing from the over-the-counter (OTC) market to the New York Stock Exchange (NYSE), a move that it expects to take in the next two quarters. (Source: “FSD Pharma Inc (CNSX:HUGE) Pivoting to Medicinal Biotechnology,” Midas Letter, February 5, 2019.)

Expansion Plans: 400 Million Grams of Dried Cannabis Flower Annually 

The company’s wholly-owned subsidiary, FV Pharma Inc., is a licensed producer of marijuana, having received its cultivation license in October 2017. (Source: “About FSD Pharma,” FSD Pharma Inc, last accessed February 7, 2019.)

FSD Pharma first garnered attention when it announced that it purchased a former Kraft Heinz Co (NASDAQ:KHC) plant in Cobourg, with plans to turn it into a multi-million-square-foot medical marijuana facility. (Source: “FSD Pharma Stock Appears to Have Enormous Potential,” FSD Pharma Inc, July 20, 2018.)

It was expected to be completed and operational in the first quarter of 2019, with cultivation expected to start in the first half of 2019.

Details of the expansion plans include the following:

  • Phase 2 expansion will result in up to 820,000 square feet of production space.
  • At full capacity, the facility will be able to produce 400 million grams of dried cannabis flower annually.
  • Sales will target all legal avenues of the cannabis industry: cultivation, processing, manufacturing, extracts, and research & development.
  • The plant has its own electrical substation, natural gas lines, multiple water intakes, rail lines directly into the facility, and 26 loading docks.

(Source: Ibid.)

Positive 2018 Q3 Results

At the end of November 2018, FSD Pharma announced its third-quarter financial results. Highlights include:

  • Mark to market investment gain of CA$6.8 million
  • Positive earnings per share of CA$0.003
  • Strong cash position of CA$33.8 million and no debt
  • Received license to sell to other licensed producers
  • Increased production footprint
  • Full sales license in progress for the Cobourg facility

(Source: “FSD Pharma Reports Positive Q3 Results,” FSD Pharma Inc, November 30, 2018.)

“Our strong balance sheet affords us the luxury of being able to ensure success as we transform the company into a renowned leader in the cannabinoid pharmaceutical space, while building out the largest indoor cultivation facility in the world,” said Zeeshan Saeed, president and founder of FSD Pharma. (Source: Ibid.)

After the 2018 Third Quarter

Since the end of 2018 Q3, which ended September 30, FSD Pharma has made a number of major announcements.

In late October 2018, the company announced that its application for a cannabis license under the Excise Tax Act was conditionally approved by the Canada Revenue Agency. (Source: “FSD Pharma announces issuance of cannabis license under Excise Act,” FSD Pharma Inc, October 25, 2018.)

Having a cannabis license is necessary to legally sell marijuana, and is a prerequisite of obtaining a sales license under the Cannabis Act.

In November, the company announced that FV Pharma Inc. was now able to sell cannabis to other licensed producers.

FV Pharma Inc CEO Thomas Fairfull said the following:

The migration of the company’s license, with the ability to sell under subsection 11(5) of the Cannabis Regulations, along with the recent addition of grow and operation areas to its existing license, brings the Company to the verge of readiness for a pre-sale inspection and obtaining of a full sales license from Health Canada.

(Source: “FSD Pharma Receives License to Sell to Other Licensed Producers and Expands Growth Production Footprint,” FSD Pharma Inc, November 13, 2018.)

In December, FSD Pharma announced a $1.3-million investment (just under 9.9%) in Huge Shops, a Toronto, Ontario-based cannabis retailer. (Source: “FSD Pharma Announces Strategic Investment in Huge Shops – Huge Shops forms alliance with Coffee Time’s parent company Chairman’s Brands to establish retail distribution network,” FSD Pharma Inc, December 20, 2019.)

Huge Shops has a strategic alliance with Chairman’s Brands, the parent company of Coffee Time, a well-established coffee shop chain in Canada and other countries.

Huge Shops stores will be operated independently of Coffee Time, but the agreement provides access to Coffee Time’s management team and real estate portfolio.

Last Step Before Getting a Sales License

On January 8, the company announced that it had completed the harvest of its second crop of cannabis and had successfully passed all analytical testing. This positioned it to request a pre-sales license inspection from Health Canada. (Source: “FSD Pharma Completes Harvest and Passes Analytical Testing of Second Lot,” FSD Pharma Inc, January 8, 2019.)

The pre-sales license inspection is the last step prior to the issuance of a sales license in Canada. Saeed stated:

With the completion of analytical testing and the recent addition of grow rooms to our license, we are now positioned to submit our readiness report for a pre-sale inspection, while at the same time being able to continuously cultivate and harvest all existing licensed space so as to maximize supply to the medicinal and recreational markets.

(Source: Ibid.)

Analyst Take

There’s growing interest in HUGE stock. FSD Pharma has the properties and infrastructure in place to build the largest indoor cultivation facility in the world.

The company also successfully passed its analytical testing and is now waiting for its Canadian sales license. If that is approved, FSD will get into the supply business, which is where the real money is. The stock would also then jump onto Wall Street’s radar.

Until FSD Pharma gets its sales license, investors can take solace in knowing that the company is sitting on a pile of cash and has no long-term debt. Those are the kinds of fundamentals you like to see when a company is waiting for the green light.