Quantum Biopharma Ltd (QNTM)

[oliverhugo]

Seeking Alpha Article

Summary

Concerned shareholders demand AGM/special meeting.
Company founders leading dissent.
Ontario Court grants meeting requisition.

HUGE share collapse

When FSD Pharma launched back in 2018 the Canadian cannabis space offered tremendous investment opportunities. Trading on the Canadian Securities Exchange under the symbol HUGE, FSD (HUGE) burnt up the record books for the most shares traded on the CSE and soared in value.

HUGE had the advantage of taking a “smart” approach to cannabis. While it planned to build out a growing facility, one of its founders, investment banker Anthony Durkacz, recognized that simply growing marijuana for recreational use was going to eventually be a low margin commodity business. The performance of the overall Canadian cannabis sector in the last three years has borne out Durkacz’s insight.

For Durkacz and fellow founder Zeeshan Saeed, the real potential in cannabis lay in the various pharmacological properties of the many compounds in the cannabis plant. As Durkacz pointed out, a single, successful drug derived from cannabis could produce literally billions in revenue. As a strategic vision looking to the pharmacologic uses of cannabis and the cannabinoid molecules made a lot of sense.

But how? HUGE proceeded to align with an Israeli company, SciCann Therapeutics for biotech expertise and was working with Canntab Therapeutics on controlled dose delivery. In 2019 FSD gained its medical sales licence. In January 2020 FSD was listed on the NASDAQ. It had acquired an American biotech firm, Prismic Pharmaceuticals in 2019.

While HUGE was advancing on the strategic acquisition and pharma fronts it was also attempting to bolster its management capacity. To that end, in late 2018 it appointed Dr. Raza Bokhari to be interim CEO and Co-Chairman of the Board of Directors. Dr. Bokhari was, apparently, “Physician turned entrepreneur, Dr. Bokhari has over the past several years developed outstanding expertise in aggregating and accelerating life sciences and healthcare services companies. He has a vast knowledge base of developing creative concepts, implementing programs and forming strategic alliances.” Dr. Bokhari, in turn, brought a number of new directors to FSD Pharma as well as a number of executives.

Under Bokhari’s leadership, HUGE pivoted to focus on the emerging American market. Bokhari came up with a new business plan and focused the company away from cannabis towards becoming a pharmaceutical and biotechnology company.

For HUGE shareholders the Bokhari regime has been a huge disappointment and a financial disaster. From the time Bokhari took over in October 2018 to the present the value of HUGE shares has fallen 97% wiping out $500 million in market capitalization. There is no sign that Bokhari’s business plan is being implemented. But there is every indication that Bokhari and his associates are willing to compensate themselves extravagantly.

Realistically, HUGE is barely functioning as a company and it is certainly not generating much in the way of shareholder value. Worse, Bokhari and his associates have refused to attend Board meetings and refused to call the annual meetings of shareholders required by law. Plus, Bokhari and his associates purported to issue 16 million Class “B” shares increasing the shares outstanding by 83% in just seven weeks. Many of those shares went to the Bokhari group.

For Durkacz and Saeed, founders of the original company, this was well past a disagreement on strategy or corporate direction; this was a refusal to meet the duty directors and officers of a company have towards its shareholders. As Directors themselves, Durkacz and Saeed felt obligated to take action. They requisitioned a shareholders meeting for March 31, 2021. The Bokhari group sought to postpone this meeting for at least six months.

Durkacz and Saeed, along with a number of “concerned shareholders, went to the Ontario Superior Court of Justice (Commercial List) and, on March 5, 2021, secured orders from that Court that the shareholders’ meeting take place May 14, 2021 and that that meeting be chaired by an independent person, not Dr. Bokhari. The Court further ordered “that the votes attached to shares issued since the Requisition Date to Dr. Raza Bokhari, Stephen Buyer, Robert Ciaruffoli, James Datin, Gerald Goldberg and Larry Kaiser and any entities related to any of them not be counted at the upcoming meeting.”

It was a significant victory.

What will now happen is that the “Concerned Shareholders” led by Durkacz and Saeed, will solicit the votes of HUGE shareholders to replace the present Board of Directors with directors aligned with the idea that FSD Pharma has a serious future in the cannabis and psychedelics marketplace. A solicitation for votes was published March 17, 2021 and a website, www.restoreFSD.com was created.

There is every chance that Durkacz and Saeed’s slate of Directors will prevail simply because the two founders of the company hold super-voting class “A” shares. However, existing HUGE shareholders need to look very carefully at the direction their company has taken under Bokhari and think about where they want the company to go from here.

Proxy fights, and this is a proxy fight, are often about one group of shareholders trying to take control over valuable assets from another group. “Dissident” shareholders are often dissenting because they want an outcome which is personally profitable to them. In the HUGE war, Durkacz and Saeed’s personal interest might well have been to walk away from a badly managed company. Instead, they have recognized their duties as Directors and, at their own expense, hired the lawyers and filed the material necessary to give HUGE shareholders the opportunity to protect themselves.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.