FSD Pharma Inc (OTCMKTS:FSDDF) has the potential to become one of the largest licensed cannabis producers in Canada. A 3.8 million square foot cannabis production facility is one of the assets that affirms the company’s prospects.
Catalysts And Share Price Analysis
The company has also inked strategic partnerships with heavy hitters as well as upcoming cannabis companies as it seeks to strengthen its growth metrics. The company’s massive footprint, as well as operational efficiency, has so far gone under the radar, if the stock’s performance is anything to go by.
The stock has continued to edge lower since the second half of last year. Since peaking to record highs of $0.88 in September, the stock has come down tumbling and in the process shed more than 70% in market value.
Soaring short selling pressure now threatens to push the stock to all-time lows. After months of consolidation above the $0.20 level, short sellers appear to have resumed control and now look set to continue pushing the stock lower.
The stock remains susceptible to a fall back to the $0.12 level, which is the next support level. FSD Pharma has continued to implode even on the broader cannabis sector turning bullish following recreational use legalization in Canada and the passing of the 2018 Farm Bill in the U.S.
About FSD Pharma
FSD Pharma is a Canadian cannabis-focused company. The company produces medical cannabis products that it distributes across various dispensaries. In addition, it is engaged in the development of indoor pharmaceutical grade cannabis as well as cannabinoid-based treatments.
FSD Pharma is the subject of soaring short selling pressure on reporting disappointing financial results for the 2018 fiscal year. Revenue for the fiscal year ended October 31, 2018, dropped to $8.7 million from $9.99 million reported the previous year. The company attributes the drop to a loss of a wholesale customer in Famous Brandz business.
Gross margin in the year dropped to $3.1 million from $4.7 million reported in 2017. The company ended the year with a wider than expected net loss of -$4.5 million compared to a net income of $296,316 generated in 2017.
“The negative income and cash outflows were primarily driven by costs incurred to prepare the Company’s non-offering prospectus and become listed on the Canadian Securities Exchange, for additional staffing and third-party service providers, retail store setup costs as well as increased sales and marketing efforts,” FSD Pharma in a statement.
Bullish 2019 Outlook
The company has sought to dispel concerns about its long term prospects, by reiterating an aggressive expansion drive in pursuit of sales opportunities. The company plans to advance its Canna Cabana store footprint to 26 new locations to supplement the current ten in operation.
FSD Pharma is also in the process of setting up recreational cannabis stores in every province as it seeks to reinvigorate revenue growth after 2018 disappointments. The company has already acquired two locations in Saskatchewan as part of its expansion drive.
In a bid to ramp up the production of cannabis products for meeting the growing demand, FSD Pharma has signed a five-year supply and loan agreement with Canto Therapeutics. Under the terms of the agreement, the company is to purchase $5 million worth hemp crop for a period of five years starting 2019.
“Our processing license, received last week, allows FSD to work with Cantab and World Class to process the hemp product into CBD oil, a significant saleable product that can be converted into gel capsules and tablets. Once the edibles legislation is in place later this year in Canada, as we anticipate, FSD will be ready to process and supply the market,” said Interim CEO Dr. Raza Bokhari.
In addition, the company is investing in innovative research and development as it looks to strengthen its cannabis production capacity. The company has already confirmed a $1.5 million strategic investment that will result in the installation of Pharm Strip Corp’s proprietary equipment. FSD Pharma intends to use the equipment for the manufacturing of oral thin filmstrips.
What Next For FSD Pharma
FSD Pharma has taken a significant hit on reporting a wider than expected net loss. Price action activity indicates that short sellers are in control and could continue to push the stock lower. While management has reiterated the company’s long-term prospects with strategic investments, the stock remains under pressure. For investors eyeing opportunities in the stock, it might be wise to take a buy and hold approach and accumulate on dips.
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Disclosure: We have no position in FSDDF and have not been compensated for this article.