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FSD Pharma Inc
Symbol HUGE
Shares Issued 1,373,599,691
Close 2019-02-06 C$ 0.335
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Auxly Cannabis, FSD Pharma cancel joint venture

2019-02-07 08:42 ET - News Release

See News Release (C-XLY) Auxly Cannabis Group Inc

Ms. Sarah Bain of Auxly reports


Auxly Cannabis Group Inc. has terminated the definitive agreement dated March 3, 2018, between the company and FV Pharma Inc., a wholly owned subsidiary of FSD Pharma Inc., governing the joint venture between the parties.

The joint venture was formed with the intention of developing a portion of FSD Pharma's cannabis cultivation facility located in Cobourg, Ont., in mutually agreed staged phases. Pursuant to the agreement, the company was to receive a 49.9-per-cent stream of all cannabis produced at the JV facility; the first phase of the JV facility development was to be the construction of an approximately 220,000-square-foot self-contained cultivation facility. To date, the company has invested $7.5-million in the development and construction of the JV facility. That amount was invested into the project pursuant to a private placement dated Sept. 20, 2018, pursuant to which the company received 7.5 million Class B subordinate voting shares of FSD Pharma.

In the course of the company's efforts to advance the JV facility development, it identified contractual breaches relating to FSD Pharma's management and staffing obligations of the JV facility, as well as significant concerns regarding certain aspects of the buildings' infrastructure. On Jan. 17, 2019, the company provided notice to FSD Pharma of such breaches in the hopes that FSD Pharma would work with the company toward a resolution. To the company's disappointment, FSD Pharma failed to remedy its breaches and instead purported to terminate the agreement effective Feb. 6, 2019. The company subsequently terminated the agreement effective Feb. 7, 2019. The company reserves all of its rights under the agreement.

The termination of the joint venture arrangement with FSD Pharma does not materially impact the company's strategy nor its supply pipeline. The company has a robust supply pipeline comprising a combination of wholly owned assets, streaming partnerships, joint venture partnerships and commercial offtake arrangements, and will quickly evaluate where to most effectively redeploy its capital.

Chuck Rifici, chairman and chief executive officer of Auxly, commented: "We are disappointed by FSD Pharma's response to our significant concerns. We remain committed to working with all of our partners and are surprised by FSD Pharma's chosen course of action. We will explore strategic alternatives for the approximately $50-million in capital that was earmarked for FSD Pharma that is now available for deployment. We take our responsibility as stewards of shareholder capital very seriously and remain committed to delivering on our strategy."

About Auxly Cannabis Group Inc.

Auxly is a vertically integrated cannabis company with diverse operations across Canada and Uruguay. The company was formed with the primary intent of providing financing solutions to cannabis licence applicants, and has evolved into a platform spanning the entire cannabis value chain. Auxly's management believes that a vertically integrated model, adapted for the cannabis space, allows for substantive control over its operations through increased operational flexibility, economic resiliency and improved product margin dynamics in an effort to create long-term shareholder value.

We seek Safe Harbor.

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