What is going on with Premier Diversified and Zed Therapeutics?
Back in September it was announced that PDH ( Premier Diversified Holdings ) picked up some shares in Zed Therapeutics. Specifically 5,144,000 shares for a consideration of $25,720.00. This values the shares around $0.005 CAD. The stake is almost 37% of Zed’s common stock. As a result we get a back of the envelope estimate of $70K total marketcap for Zed Therapeutics. Zed Therapeutics also added Premier’s CEO Sanjeev Parsad to the board of directors.
What is Zed Therapeutics?
At the time of this writing the Zed Therapeutics website appears to be down. A cached google result shows an under construction site:
Zed is based in Alberta, Canada. The companies self reported focus is “Medicinal Hemp” (vs “Medicinal Marijuana”). This appears to mean that their products will be focused on CBD with low or almost no THC. CBD aka Cannabidiol is found in marijuana and often associated with its healing and pain relieving characteristics. CBD reportedly does not cause a high. The high normally comes from the THC in Marijuana. Hence if you produce a product with CBD but no or little THC then you have something of interest to people who want the relief benefits of Marijuana but don’t want to get “stoned”. According to the press release Medicinal Hemp products have around 0.3% THC or less.
There is not a lot of information about Zed Therapeutics online.
The shares were issued to us and 3 other insiders of MyCare who supported the company in the early days. We (PDH) personally are not going into the medicinal hemp business…MyCare is. The $0.005 per share is the minimum that has to be charged for the issued shares. That is not the price of what any other shares will be issued at for ZED Therapeutics. Cheers!
MyCare (aka GoEvisit ) is a PDH investment. It sounds like MyCare and it’s investors helped Zed earlier and this is equity in exchange for that help. What is not clear what kind of help they provided. Given the stake is close to 37% of the company I would assume the help was via cash. I also expect that this position will probably see pretty heavy dilution in the not so distant future. Parsad alluded to more stock being sold in his message board post albeit at higher prices. Higher prices would obviously increase the mark to market value of PDH’s position but also dilute at the same time.
What does this mean for Premier?
It is hard to say what to make of this investment. Without knowing any deeper details the Zed Therapeutics investment seems to be a speculative position that company acquired in exchange for helping out a startup. This is a very hot space for speculators and traders but it is not clear that anyone in the business has any durable long term competitive advantages.
Sequant Re sounded like a very compelling opportunity for Premier (PDH) shareholders. The company focused on the ILS (Insurance Linked Securities) market. By securitizing the financial burden of insurance ILS allows re-insurance to be easily distributed among many investors. Typically before ILS re-insurance was handled by a few specialty insurers. ILS also offer investors a product with low correlation to other assets such as bonds and equity.
Sequant aimed to underwrite re-insurance through ILS and provide easy access to ILS portfolios for investors. Guy Cloutier an insurance industry veteran started Sequant Re. He was formerly of American Safety Re. There is an interesting connection here because American Safety Re’s parent company American Safety was purchased by Fairfax Financial and Premier’s CEO Sanjeev Parsad has a long standing relationship with the folks at Fairfax. Fairfax eventually sold of the reinsurance business of the American Safety.
Sequant Re Liquidation
After three years the board of Sequant Re has decided to throw in the towel. Premier Diversified Holdings (PDH) owns almost 50% of Sequant’s equity and will be writing it down from 2.5M to zero.
According to Sanjeev’s message on the COBF board, Sequant failed to recruit any large institutional partners. That ultimately lead to stopping the bleeding and calling it quits. Given Guy Cloutier’s history in the re-insurance biz and the connection Sanjeev has at Fairfax it seems like finding a partner for a good idea would not be so hard. Or maybe the idea was not compelling enough? It will be an interesting story to hear if we ever do.
In this Artemis article Guy was quoted as saying that their partner backed out due to US tax implications.
“We spent a considerable amount of time and resources in discussions with a potential significant strategic partner. At the end of the day, they did not proceed due to their perceived US tax implications.”
This is a big blow to Premier. The loss is a massive amount of money for a business of their size. On the plus side they have stopped the bleeding and will not need to fund Sequant any longer. Insurance Linked Securities are continuing to experience growth. It is an interesting area of insurance and finance that I will continue to keep an eye on.