Legal Battles and Investor Concerns: FSD Pharma’s Rocky Road

FSD Pharma, a Canadian pharmaceutical company, has found itself in the midst of several ongoing legal battles, raising doubts about the strength of this psychedelic stock. While controversies involving former CEOs have subsided at MindMed, FSD Pharma now takes the spotlight. The company is facing significant challenges and potential implications for its future prospects.

The Nasdaq-listed life sciences company focuses on developing novel compounds based on cannabinoids and psychedelics to address neurological disorders. The company made a notable move in the psychedelic sector by acquiring Lucid Psycheuticals in 2021. However, FSD Pharma’s psychedelic stock is facing turbulence, making investors question the company’s stability and potential returns.

As FSD Pharma fights its legal battles and grapples with a short-selling problem, the company’s stock and investor confidence hangs in the balance. The outcomes of these challenges will significantly impact FSD Pharma’s trajectory and determine its ability to regain stability and attract potential investors in the future.

The Canadian pharmaceutical company has been facing a significant short-selling problem recently. This week, FSD Pharma put out a press release about their intention to investigate this issue. The company has brought on a team of lawyers and experts to conduct a “preliminary investigation of possible naked short-selling and manipulation in its stock.”

Short selling occurs when investors borrow shares of a stock and sell them, hoping to buy them back at a lower price in the future and profit from the difference. While short selling is a common practice in financial markets, excessive or manipulative short selling can pose serious challenges for companies like FSD Pharma.

At the time of writing this, the stock is trading at $1.90, down from $2.04 back in April. This is a fairly significant drop in just a few months. Though it has risen from its low point of $1 at the end of May.

FSD Pharma initially focused on the development of treatments for central nervous system disorders using cannabinoid-based therapies and later transitioned to psychedelics. However, the company’s journey has been fraught with challenges and a lack of clear direction. These factors have made FSD Pharma a target for short sellers who capitalize on the company’s struggles.

Back in 2020, FSD Pharma pivoted from medicinal cannabis to its pharmaceutical research and development. Since then, the company has been all over the place. In a recent press release, the company– again– professed its intention to pivot toward more profitable endeavors. It is difficult to say exactly what the future holds for the company, which undoubtedly makes investors nervous.

FSD Pharma has several legal battles underway and has for a couple of years now. The company is currently in a sticky web of legal trouble, and the ongoing battles are not going away anytime soon. The first started several years ago with an alleged wrongful dismissal of the former CEO, Dr. Raza Bokhari. The company ultimately won the arbitration in November 2022 and received $2.81 million in cost award, but it didn’t end there. 

Bokhari is attempting to overturn the decision of the wrongful dismissal case on a claim that the presiding justice, Justice Douglas Cunningham, has undisclosed past and ongoing business with FSD Pharma’s attorney. This is a major accusation against both the company and its attorney. 

In addition, the former CEO’s attorneys have filed several new claims to “seek damages from FSD Pharma alleging breach of his employment contract and for tortious and intentional interference with economic relations during and subsequent to Bokhari’s tenure as FSD’s Executive Chairman and CEO. The filings further claim negligence, misrepresentation, and other causes on the part of FSD’s founders, Anthony Durkacz and Zeeshan Saeed, before, during, and after the proxy fight that ultimately led to his constructive dismissal in 2021.”

The initial dispute that led to Bokhari’s dismissal from the company was over the 2021 acquisition of Lucid Psycheutical. Bokhari was against the acquisition, claiming that Lucid was a shell company with no valuable assets, and it was only being considered because one of the founders of FSD had a significant financial interest in the company. The outcome of the legal disputes with Bokhari is unknown at this time.

In addition to the drama with FSD Pharma’s former CEO, FSD Pharma is facing a $53 million lawsuit from GBB Drink Labs. GBB filed the lawsuit less than a month after it sent a cease and desist order on April 14, 2023.

The lawsuit claims a breach of contract and trade secret misappropriation. The press release said, “GBB’s lawsuit alleges that FSD Pharma used GBB’s proprietary and confidential material to raise capital, persuade iconic entrepreneurs to join its advisory board, and drive up the price of FSD Pharma’s publicly traded stock.” If using this information illegally did help drive up the stock, the company is paying for it now, with the stock dropping significantly since this news came out.

The two companies had been in talks about working together, but that came to an end when FSD allegedly shared GBB Drink Labs’ trade secrets in a press release to investors. FSD Pharma was considering an acquisition of GBB, something that has since fallen through. The alleged misappropriation of trade secrets was related to GBB’s unique alcohol detoxification product. 

Suspiciously, on June 20, 2023, FSD Pharma announced that it was granting Celly Nutrition Inc. exclusive rights to its own alcohol misuse technology, which also facilitates rapid alcohol detoxification. Sound familiar?

The same press release included announcements about new personnel for both companies, including two new board members for FSD and a new CEO for Celly Nutrition. All new personnel were touted for their vast experience in the drink industry, suggesting that both companies are planning to make this alcohol detoxification technology into a drink and begin marketing it right away. 

All in all, this does not bode well for investor confidence in FSD Pharma’s psychedelic stock. No one likes a lawsuit, let alone several that could cost the company tens of millions of dollars. FSD Pharma maintains its position of innocence and is planning to fight all of the legal claims against them. They’d better hope that they win because otherwise, it will cost a lot of money and the support of their investors.