Investing in Psychedelics: Why You Need To Pay Attention

I’m excited to have my good friend John Prins writing a story for us! He trained as a CPA and worked in the finance and investing business for 25 years, both buy side and sell side in Canada.

Note that January 2020 retail data for cannabis sales in Canada was very bullish–$154 million, up 4% from December. The number of stores opening and sales per store is rising. Online orders are soaring.

By John Prins, CA, CPA

When the world’s first pure play publicly listed psychedelic medicine company – Mind Medicine Inc. (MMED:NEO – NEO is a Canadian exchange) listed in early March, the stock soared.

It was up 300% in its first three days of trading. Of course, the Market crash in the last few days has brought the stock down. But it’s a very encouraging early sign of investor interest…in what some believe will be the next stock market bubble. 

They announced TODAY that they are starting human trials on one of their products that they are hoping will be a cure for opioid addiction, and the stock is up 30% on volume.

Several very astute investors—like Steve Cohen and Peter Thiel—have placed large bets in the psychedelics space. 

There have been some encouraging indications that psychedelics DO work as a medicine (=high efficacy).

It reminds me of the monster returns generated by early investors in the cannabis space. Consider early cannabis industry entrant Canopy Growth (WEED:TSX) for instance:

Why Psychedelics Thought Leaders Believe 2020
Will Be THE Game Changing Year

The global march toward cannabis legalization has generated another area of scientific interest: psychedelics as medicine. While the idea of using LSD, MDMA, and psilocybin (the main hallucinogenic compound in magic mushrooms) to treat mental health disorders is not new, this whole area of research had been off limits for the better part of the last five decades.

Despite psychedelics being a promising psychiatric treatment commonly used in the 1950s to treat a large array of disorders, by the 1970s their use and research was banned.

Their efficacy/success in treating psychiatric conditions and understanding the brain’s neurochemistry was overshadowed by their association with a rebellious counterculture and political dissent.

Fast forward to a new millennium, and the FDA (U.S. Food and Drug Administration) and DEA (U.S. Drug Enforcement Agency) are increasingly approving psychedelic research. Why? Psychedelics studies have yielded some very positive results. 

The studies suggest that, when administered to carefully screened patients by trained health professionals, psychedelics are safe and very effective tools for alleviating – among other ailments – PTSD, addictions (including opioids, recreational drugs and alcohol), cluster headaches, anxiety, depression and OCD. Psychedelics generally considered physiologically safe and do not lead to dependence or addiction.

Several important developments in recent years have inspired entrepreneurs and several notable investors (see Follow the Money below) to make early psychedelic related investments. Specifically:

• In 2017, the FDA granted a “Breakthrough Therapy” designation to non-profit Multidisciplinary Association for Psychedelic Studies (MAPS), specifically for MDMA (more commonly known as molly or ecstasy) in the treatment of PTSD. Phase 3 clinical trials are ongoing.
• In 2018, the FDA gave life sciences start-up COMPASS Pathways, a “Breakthrough Therapy”  designation for its research into psilocybin (an active ingredient in magic mushrooms) for depression. Compass is currently running a phase IIb study across Europe and North America, involving 216 patients who suffer with depression that hasn’t responded to established medications.
• In 2018, the DEA rescheduled GW Pharmaceuticals’ (GWPH-NASD) cannabis-based epilepsy medicine, Epidiolex, following its regulatory approval by the FDA. There’s no overarching reason to think psychedelics can’t be handled in the same manner, especially if a drug successfully completes a rigorous clinical trial program.
• In March 2019, the FDA approved Johnson & Johnson’s (JNJ-NYSE) ketamine-derived medicine Spravato for treatment-resistant depression. This landmark approval is unique in that ketamine is well known to have hallucinogenic properties, as well as a long history as a party drug.
• In 2019, non-profit Usona Institute was granted a “Breakthrough Therapy” designation for psilocybin in the treatment of major depressive disorder. Usona’s Phase 2 clinical trial is ongoing.
• In January 2020, COMPASS Pathways was issued by the US Patent and Trademark Office, a patent relating to the methods of treating drug-resistant depression with a psilocybin formulation. The ability to create the proverbial competitive moat via patent protection is vital to entrepreneurs and investors.

“Breakthrough Therapy” designation means the treament has demonstrated such potential that the FDA has decide to expedite its development and review process.

A Massive Global Market in Desperate Need of Safer and More Effective Solutions

Industry proponents believe that psychedelics can produce safer and more effective solutions to several massive global problems.

There is rarely more than one degree of separation to someone who has been impacted by one of the illnesses for which psychedelics can manage or cure. 

And these market segments are massive:

PTSD (post-traumatic stress disorder): Credence Research estimates that the global PTSD therapeutics market will reach ~US$10.7B by 2026 and grow by 4.5% per year, from 2018 to 2026.

Depression: the WHO (World Health Organization) estimates that each year 800,000 people die due to suicide. Market Study Report reckons that the global depression drugs market was valued at US$15B in 2018 and is expected to reach US$17.3B by the end of 2024, growing at 2.9% per year between 2019 and 2024.

Addiction: according to Transparency Market Research, the global addiction treatment market (including nicotine, alcohol and opioids) was valued at US$4.9B in 2018, is projected to expand at an annual rate of 6.7% from 2019 to 2027, and is likely to reach US$7B by 2026. The opioid epidemic alone has become a worldwide crisis, with more than 130 people dying every day from an overdose in the U.S.

Anxiety: IndustryARC estimates that the global generalized anxiety disorder market will reach US$7.5B by 2023, while growing at 2.5% per year.

Follow the Money

In addition to a handful of institutional ‘early adopters’, several notable entrepreneurs and ultra high net worth investors have placed early bets in the psychedelics industry. Most notably:

Peter Thiel – American entrepreneur and venture capitalist. Facebook’s first outside investor. Co-founder of PayPal, Palantir Technologies and Founders Fund. In 2016, Thiel revealed that he had funded Hulk Hogan in the Bollea v. Gawker lawsuit, which ultimately led to the bankruptcy of Gawker. Net worth: US$2.3B (2019).

Steven & Alexandra Cohen Foundation – Steve Cohen is an American billionaire hedge fund manager and founder of hedge funds Point72 Asset Management and now-closed S.A.C. Capital Advisors. Time Magazine ranked Cohen 94th on its annual Time 100 list of most influential people in 2007. As of February 2020, he has an estimated net worth of US$14.1 billion.

Thor Bjorgolfsson – Iceland’s first billionaire, Bjorgolfsson is estimated by Forbes to have a net worth of US$2.2B.

Tim Ferris – entrepreneur, author (five books including The 4-Hour Workweek), podcast host, angel investor and advisor to start-ups, Ferriss has donated an estimated US$3,000,000 for clinical research into psychedelic drugs. Ferriss’ net worth is estimated to be US$100MM.

Mike Novogratz – formerly a partner at Goldman Sachs and Fortress Investment Group, Novogratz’ estimated net worth is US$600MM (2019).

Bruce Linton – founder and former CEO of Canopy Growth Corp., the world’s largest cannabis company and the first marijuana firm to be listed on the New York Stock Exchange. In 2019, it was estimated that Linton’s net worth was US$80MM.

Kevin O’Leary – Canadian businessman, author, politician, and television personality. O’Leary’s net worth is estimated at US$400MM (2020).

Summary

The psychedelics space certainly has the early makings of the next stock market bubble: big societal problems needing more effective solutions, large and growing global markets, societies and governments more willing to adopt alternative solutions to unsolved problems, and very astute early investors in the space. 

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