$HUGE
Lack of any Clear Strategy
Although Management of FSD claim to have a strategy for FSD, based on recent events and the disclosure in
the Management Circular, it is unclear what this might be. In March 2020, the Company elected to pivot from
medicinal cannabis to becoming an early-stage pharmaceutical and biotechnology venture. The Management
Circular asserts this focus and disparages investment in the psychedelics industry; yet, it also repeatedly asserts
that the acquisition of a psychedelic company is part of the Company’s current acquisition strategy. Management
are apparently focusing research and development efforts on developing COVID-19 treatment for humans but
the only agreement the Company has recently announced relates to veterinary medicine. Most concerning,
however, was management’s recent attempt to rush through a material and transformational acquisition in yet
another unrelated industry, this time being in dental care (see “– Improper Transaction” below). This random
assortment of proposed and actual initiatives lacks any clear focus and is in no way a coherent strategy for
rebuilding FSD.
Management refers to Dr. Bokhari’s strategy, the Company’s successes in 2020 and its plans for acquisitions,
but any detailed examination of the complete facts reveals these to be fictions. There have been no material
advancements of the Company’s plans or projects and the share price reflects that. Quite simply, any truly
positive development would have been well-disclosed to Shareholders with the expectation that the markets
would reflect that success in the trading price of the Company’s shares. This has not happened.
Failure to Advance Stated FSD Management Goals
Following an attempted strategic refocus in March 2020, Dr. Bokhari and the Board identified several key goals:
(i) conducting a phase 2 clinical trial for the use of the Company’s lead compound in COVID-19 patients (the
“Phase 2 Clinical Trial”), (ii) disposing of unnecessary assets, including the 620,000 square-foot cannabis
processing facility in Cobourg, Ontario (the “Cobourg Property”) that has become obsolete under the new
business plan and (iii) identifying strategic acquisition opportunities to diversify the Company’s business lines.
In particular, the Board concluded that a strategic acquisition was an effective way to deploy the Company’s
substantial cash reserves to accelerate the transition into a pharmaceutical and biotechnology company. To date,
Dr. Bokhari and the Board have failed to achieve any of these objectives: (i) while the Phase 2 Clinical Trial was
approved in September 2020, so far the Company has announced the enrollment of only one patient, out of an
“expected” 352 patients, without providing specifics on any further enrollment, (ii) while the Company listed its
Cobourg Property for sale in the first quarter of 2020, it remains unable to dispose of the property, and (iii)
management has failed to identify any appropriate strategic acquisition opportunities, instead attempting (and
failing) to execute transactions in unrelated industries and without adequate diligence.
9
Improper Transaction
The recently proposed acquisition of a controlling interest in a privately-held early stage dental care company
(the “Dental Care Company”) was of such great concern that the Concerned Shareholders sought an injunction
to prevent Dr. Bokhari and the Collaborating Directors from acting precipitously in advance of the Meeting and,
on April 9, 2021, a court granted an order preventing FSD from entering into the proposed transaction and, more
broadly, from taking any other actions outside of the ordinary course prior to the Meeting. In the summer of
2020, the Company considered an opportunity to acquire the Dental Care Company, which is developing
treatments for periodontal disease, and rejected it for a number of reasons. Faced with a looming shareholder
meeting and no material evidence of having advanced FSD’s business, Dr. Bokhari resurrected the transaction
and signed a letter of intent on April 2, 2021 (the holiday of Good Friday), sought board approval of the proposed
transactions on April 8, 2021 and intended to close the transaction on April 12, 2021. Although there was no
evidence that the Dental Care Company had advanced its business model in any appreciable way, the proposed
deal made the purchase of only a portion of the company substantially more expensive than the previously
proposed price for acquiring the entire company.
Dr. Brennan, the Company’s Chief Medical Officer and the individual who completed the scientific diligence
review of the Dental Care Company, has a material, indirect ownership interest in that company that is
conveniently not disclosed in the Management Circular – notwithstanding that it is a substantially greater
financial interest than the fully-disclosed minority interest of Mr. Durkacz in the Target (with which no
transaction has been formally proposed) that is referred to repeatedly in the Management Circular. Unusually,
the transaction featured a price protection mechanism for the sellers that would only work to increase the number
of shares issued by FSD in the event of a decline in its share price, without a corresponding adjustment in FSD’s
favour in the event that its share price increases.
The details of the proposed transaction were provided to Board members for consideration on less than 24 hours’
notice. Consistent with the timeline described above, the materials included had all been prepared within only a
few days of the date of their delivery, with some marked as draft – far from evidence of a complete and careful
evaluation of the possible transaction over many months as suggested by Management. Deliberation at the Board
meeting was brief and the transaction was approved by Dr. Bokhari and the Collaborating Directors, with the
intention that it would be concluded within days – prior to the Company’s obligation to mail the Management
Circular. This would have allowed Dr. Bokhari and the Collaborating Directors to point to a material transaction
as false evidence of their successful execution of their apparent strategy. The proposed acquisition was for a
combination of a significant amount of cash and a large number of shares and was to be coupled with a private
placement of a large number of Class B Shares to unidentified purchasers. As a director, Mr. Durkacz challenged
the transaction’s merits, the Company’s evaluation process, the apparent conflicts of interest and, above all, the
desire to rush the transaction to completion by a deadline that was without any purpose. Nonetheless, Dr. Bokhari
and the Collaborating Directors approved the transaction.
The Concerned Shareholders raised this with the Court and, within a day, a judge determined that there were
concerns that this transaction could result in irreparable harm to FSD and ordered that neither it, not any other
transaction out of the ordinary course of business, be undertaken by FSD prior to the Meeting. Dr. Bokhari and
the Collaborating directors promptly challenged the Court order. On April 16, 2021, the judge confirmed his
earlier order, stating that Dr. Bokhari and the Collaborating Directors had sought to implement a material
transaction that would fundamentally alter the playing field on which the Meeting would take place and that the
transaction itself and the process under which it was approved raise serious questions about its bona fides. This is
markedly different to the story that Dr. Bokhari and the Collaborating Directors tell in the Management Circular
– that Messrs. Durkacz and Saeed are unjustly impeding a bona fide corporate transaction that is clearly in the
best interest of FSD and its shareholders. While all of this information has been part of a public court process,
the Company has concealed the details from Shareholders and misrepresented the facts in the Management
Circular. It is entirely likely that Dr. Bokhari will commence another frivolous legal claim against the Concerned
Shareholders for attempting to reveal the truth of his actions.