- Sector has all of the ingredients for investment success
- Psychedelic stocks enjoyed a big rally this spring, now appear coiled for a new rally
- Silicon Valley and hedge fund billionaires leading the charge
- NASDAQ news driving higher valuations and trading volume
Day and night.
That’s the difference in the dynamics in the psychedelic drug industry today versus even a couple of weeks ago.
A hot sector cooled off
Psychedelic stocks were hot this spring.
Names like MindMed Inc (CAN:MMED / US: MMEDF ) and Champignon Brands (CAN:SHRM / US:SHRMF) produced multi-bagger returns for psychedelics investors. Numinus Wellness (CAN:NUMI / US:LYKSF) did that just on its opening trading day.
Apparently, however, investors in this space took to heart the old maxim “sell in May and go away”.
The market for these stocks cooled off rapidly. Trading volumes plunged. Share prices drifted sideways or lower.
MindMed’s chart is representative of this summer doldrum for shroom stocks.
The industry drivers didn’t change. Indeed, the COVID-19 pandemic has significantly worsened the Mental Health Crisis.
There were no R&D setbacks. News on psychedelic drug clinical research continues to be strongly positive.
But the investors (and investing dollars) disappeared – at least for the publicly traded companies.
Picture a sailboat. The sleekest vessel and most experienced sailors can’t coax any movement out of the boat with no wind in the sails.
Add a stiff breeze, and suddenly that same vessel is surfing across the wave-tops.
Psychedelic stocks are surfing now
Look at these volume numbers, going back to last Friday when Compass Pathways commenced trading.
Compared to the summer months (above), this is a feeding frenzy. And (as we have previously noted) all this “wind” has already powered some big gains with a few of these stocks.
MindMed Inc (CAN:MMED / US:MMEDF) CAD$0.44 –> CAD$0.65 +47%
Mind Cure Health (CAN:MCUR) CAD$0.20 –> CAD$0.60 +200%
Those aren’t annual gains. Just four trading days – three for Mind Cure.
Psychedelic stocks once again have the wind in their sails. With that in mind let’s remind investors of the opportunity here.
- Over 1 billion people are affected by the Mental Health Crisis
- Existing treatment options are mediocre (at best)
- Mental health services is a $225 billion treatment market in the U.S. alone
- Clinical trials of psychedelic drugs (for these mental health afflictions) have been generating spectacular results
- An open playing field for new entrants: Big Pharma has reduced mental health drug R&D by 70%
What are the other essential ingredients necessary to successfully launch a new industry? Capital and vision.
The Multidisciplinary Association for Psychedelic Studies (MAPS) quickly/easily raised $30 million this summer to fund its Phase 3 clinical trial of MDMA for the treatment of PTSD. Writing the biggest checks were tech visionaries like:
– Steve Jurvetson (board of Tesla and SpaceX) $2.6 million
– Tim Ferriss (author/tech investor) $1 million
MindMed has already raised $40 million in previous financings. That company is led by former Uber executive, JR Rahn.
ATAI Life Sciences has raised over $68 million for its psychedelics R&D partnerships, with some of those proceeds funding Compass Pathways’ research.
Compass itself has now just closed on its IPO financing, raising $146.6 million via the sale of 8,625,000 shares.
Greasing the wheels for these capital flows into Compass is the participation of several more market heavyweights.
PayPal’s Peter Thiel is one of the principal investors and an outspoken bull for the industry.
Wall Street financier (and former Goldman Sachs partner) Mike Novogratz is also a major psychedelics bull and Compass Pathways investor. As far back as 2018, Novogratz opined that:
Earlier this year, Novogratz told Business Insider that he sees the psychedelics space as “the next short-term bubble”.
Investors may question the use of the word “bubble”, especially when compared with some of the truly bloated valuations on the NASDAQ. But it’s clear that Novogratz is expecting these stocks to pop.
Long-term investment opportunity
Putting aside the short-term performance of shroom stocks, the sector itself appears to be here for the long haul.
With the global economy crippled by the COVID-19 pandemic, the Mental Health Crisis is already costing over $1 trillion per year in lost productivity alone. Cumulatively, these losses are projected at $16 trillion by 2030.
While the need is very acute, drug development is a slow process that stretches out over years. Rather than a “bubble”, the psychedelic drug industry shows every indication of being a major economic and investment opportunity for years to come.
However, this train isn’t going to wait at the station.
As we’ve seen this week, strong investor sentiment can power big gains in what is still a small, emerging industry. You snooze; you lose.
The Compass Pathways IPO has been a major success – and a boost for the whole industry. With summer over, the industry news flow can be expected to accelerate. MindMed’s application to up-list on the NASDAQ could be an additional psychedelics catalyst.
Psychedelic stocks are once again flying high. Don’t miss out on your own investment “trip” to success.
DISCLOSURE: The writer holds shares in MindMed Inc and Numinus Wellness. Mind Cure Health is a client of Psychedelic Stock Watch.