When it comes to a company like FSD Pharma, with a large run as of late, it’s important to really understand what your buying. We had it in December with LGC Capital shooting up to a crazy $1 per share, before collapsing, and we may have it here with FSD shooting to $0.74 a share, from the 10 cents per share range a few months ago.
Price per share isn’t everything
To be clear to all the retail investors that can’t read the market cap, its not 140 million or whatever small number it says on Yahoo Finance or TMX website. The real fully diluted market cap is a “HUGE” 1.13 billion. If you think just because it’s under $1 a share that its cheap, you’re in for a surprise. FSD currently has diluted over 1.5 billion shares outstanding. To call this a fat share structure is generous. This is a huge market cap for a company missing the all important SALES LICENSE. Without it they can’t even sell.
The one thing we will say that this company has strong marketing and publicity. They invest a lot into gaining and maintaining a strong advertising presence on BNN Bloomberg and other related networks. For a company at this stage in a growing market, that alone is a red flag. The money spent promoting could be spent way better on growing the business.
The assets the company holds are reasonable but poor value for the price its trading at. One of their strongest assets is the old Kraft plant which they are converting; a which is well located to fulfilling sales. On the other hand however, it seems as though it will be rather expensive to produce from, versus a greenhouse or even a hybrid facility. What appeals to people is the high expansion targets, phase 1 at 820 000 sq.ft, and phase 2 a target of 3 896 000 sq.ft. This looks good on paper, but how attainable is it really? and how would they get the capital for this? On top of all of this, where would they sell all this weed to with little in the way of distribution deals, and hell, no license to let them sell? It’s a plus that they have a deal with Auxly, but the path to profitability is hard to envision, especially when trading at 1.13 billion fully diluted at the close today(Monday).
At similar market caps, you have companies such as Hexo, Organigram, and Canntrust, all with significant production capabilities right now. HUGE on the other hand, has only around 4000 kg capacity. Right now, Hexo has over 20 000 kgs, Organigram over 30 000 kgs, and Canntrust over 40 000 kgs. All these companies have supply agreements with different provinces, international plans, and revenue right now. there is no way that HUGE should be trading at similar market caps, on a fully diluted scale. This is an example of buyer beware, and to be super careful, because with companies like this, they can go down just as fast as they ran up, especially with the fundamentals that don’t back it up.