How Analysts Are Asleep At The Wheel Regarding Psychedelic Stocks

  • Institutional investors are displaying a nearly insatiable appetite for psychedelic drug stocks
  • Silicon Valley and Wall Street “elites” are “pouring money” into this sector (The Wall Street Journal)
  • Yet most market analysts are asleep-at-the-wheel with respect to the opportunities in this emerging industry




Psychedelic stocks remain in a trough in 2021 as Spring approaches. Share prices have wilted, not in response to any adverse news, but simply due to a lack of volume – much of it brought on by general weakness in the broader markets.

Compounding this issue, a number of additional public companies have commenced trading in this sector. So fewer retail investor dollars are being spread across a lot more stocks.

Rabid institutional interest in psychedelic drugs

Contrast this with the institutional interest in psychedelic stocks. Public companies (alone) have raised well in excess of US$400 million since Compass Pathways (US:CMPS) commenced trading in September 2020.

Even with the pullback in share prices (or possibly because of it?) institutional investors have continued to display a robust appetite for these pubcos.

Just in the past month, Field Trip Health (CAN:FTRP / US:FTRPF), Numinus Wellness (CAN:NUMI / US:LKYSF) and MindMed Inc (CAN:MMED / US:MMEDF) have announced over US$100 million in new  bought deal financings.

From an overall industry perspective, all of the news has been very positive. Announcements of psychedelics companies launching new mental health clinics or investing in existing facilities occur regularly. Updates on psychedelic drug research already in formal clinical trials indicate that this R&D remains on track.

Drug R&D is also rapidly branching into additional fields of medical research – with huge treatment markets. And IP development is becoming an increasingly important priority among these companies.

On the regulatory front, Oregon has legalized psilocybin for medicinal use and decriminalized other drugs. California recently proposed a state bill to legalize possession of several psychedelic drugs. Several other states are either moving toward a decriminalization vote or actively studying the issue. Canada (via Health Canada) continues to broaden access to the medicinal use of psilocybin at the national level.

On the commercial front, Red Light Holland (CAN:TRIP / US:TRUFF) has now legally imported its psilocybin truffles into both Brazil and Canada.

All of these individual developments compliment the Big Picture for this industry: potent drugs which represent the world’s best (only?) hope to address a Mental Health Crisis that already affects roughly 1 in 6 people on the planet.

In short, the only reason why psychedelic stocks haven’t resumed the rapid ascent we saw in 2020 is that not enough investors are active in trading these stocks at present.

Analysts afraid to cover psychedelic stocks?

This begs an obvious question: where is the analyst coverage of the pubcos in the emerging psychedelic drug industry?

To play Devil’s Advocate, one obvious reason for the sparse coverage is that these drugs remain (heavily) controlled substances in most jurisdictions. Also, with much of the prior analyst coverage on cannabis stocks not bearing fruit (to be polite), analysts may be reluctant to cover psychedelic stocks.

We will address that latter point a little later.

It’s not just investment banks that are eagerly funneling capital into this industry. Even a mainstream commercial bank, the Canadian Imperial Bank of Commerce (US:CM / CAN:CM) is already heavily involved in the industry. As The Conscious Fund observed in a recent article, CIBC is providing backing for Compass Pathways, MindMed and Numinus.

When commercial banks start to jump into an industry, most retail investors look at that as a green light to become involved themselves. So where are the analysts, to point to the many bargain-priced stocks in this emerging industry?

Afraid to provide coverage because of previously mis-forecasting the evolution of the cannabis industry?

We can see who is not afraid of psychedelic stocks: investing heavyweights like Peter Thiel, Mike Novogratz and Kevin O’Leary.

O’Leary, TV Host of the investor program Shark Tank, is an outspoken bull for the psychedelics industry. He’s just as emphatic about refusing to touch cannabis stocks. And in general, the cannabis industry has never drawn as many of these big-name investors. Why?

Psychedelic stocks are a much different (better) opportunity than cannabis

Psychedelic Stock Watch has previously highlighted some of the key distinctions between the legal cannabis industry and the psychedelic drug industry. Primarily, it centers around the path to (full) legalization.
 
There are important reasons to expect [drug legalization] dynamics to play out in an opposite manner when it comes to psychedelic drugs.

a)  Many political inducements for legalization
b)  Strong corporate support for psychedelic drugs

Psychedelic Stock Watch has presented the policy arguments in favor of legalizing psychedelic drugs on many occasions.
 
  1. Over 1 billion people needing treatment
  2. Psychedelic drugs can revolutionize treatment for many of these conditions
  3. Psychedelics-assisted therapies can generate enormous savings in healthcare spending
  4. The Mental Health Crisis costs the global economy $1+ trillion per year in lost productivity alone

The U.S. Department of Defense refuses to allow its personal to touch cannabis -- not even CBD, the non-psychoactive (and entirely benign) cannabinoid found in both cannabis and hemp. Yet this same DoD is the world’s largest individual donor with respect to psychedelic drug R&D.

Given the way that Congress caters to the whims of the U.S. defense industry, that’s about as strong a “political inducement” as there is in the United States.

Big Pharma on board with psychedelics

Big Pharma is known to be openly antagonistic toward cannabis legalization.

Cannabis makes people generally healthier. Multinational drug companies make their fat profits from sick people. And the remarkable complexity of the cannabis plant makes it difficult to come up with effective (i.e. lucrative) drug patents.

For Big Pharma, legalized cannabis is “bad for business”. Unfortunately, multinational drug companies have many “friends” (i.e. paid lackeys) in Congress, as we’ve seen with the politics behind COVID vaccinations.

In contrast, psychedelic drugs are highly amenable to our drug patent system for commercializing new drugs. It’s one of the reasons why there have been dozens of formal clinical trials involving psychedelic drugs in recent years, because scientists involved in this research can see the patent opportunities.

Big Pharma is already marketing its own psychedelics-based drug: Johnson & Johnson’s Spravato™.

Look more closely at the key distinctions between the cannabis industry and the psychedelic drug industry and it immediately becomes easier to see why many of the home-run hitters in investing are avid bulls for psychedelics – while showing little interest in cannabis stocks.

There has been a little more analyst coverage of psychedelic stocks at the beginning of 2021.

In January, Stifel GMP initiated coverage of Field Trip Health (CAN:FTRP / US:FTRPF) and Cybin Inc (CAN:CYBN / US:CLXPF). It gave both a “speculative buy” rating, with a CAD$8.50 price target for Field Trip and a CAD$5 price target for Cybin.

That coverage helped to catapult Field Trip from a 2-month low of CAD$3.55 to as high as CAD$9.89, despite the general weakness in psychedelic stocks.

Cybin didn’t move much off of this initial coverage. However, on March 15th, Canaccord Genuity initiated coverage of Cybin. It gave CYBN a buy rating and a CAD$8 price target.

Cybin immediately bounced by ~30% from its 4-month low of CAD$1.36, before giving back some of those gains in the general selloff in tech stocks in recent sessions.

But where are the rest of these analysts, and coverage of more of the well-capitalized/undervalued companies in this sector?

Huge opportunity in psychedelics, dramatically undervalued stocks

With public companies in this space barely a year old, the industry has been raising an average of US$100 million per month in new capital for the past six months. That’s a very strong endorsement of this sector from the Smart Money.

A number of the biggest names from Silicon Valley and Wall Street are outspoken bulls for these stocks. As The Wall Street Journal reported last August:
 
That’s another strong endorsement from the Smart Money.

After being in artificial hibernation for 50 years (due to the War on Drugs), psychedelic drugs are now a brand-new industry – and (by far) the single largest new opportunity in life sciences today.
 
Yet most market analysts remain asleep-at-the-wheel with respect to this opportunity.

Sooner or later, more analysts will do their homework and climb on board the psychedelics bandwagon. In the meantime, these stocks continue to fly under the radar of most investors – presenting early investors to this space with fantastic bargains.

Industry leader, MindMed is currently trading at CAD$3.42, little more than half of its 52-week high. Numinus, which recently announced a CAD$30 million bought deal, is trading at CAD$1.15, less than half of its 52-week high.

Even after its recent move higher, Cybin is only trading at roughly three times cash. Mind Cure Health (CAN:MCUR / US:MCURF) is trading at less than two times cash.

Wake up analysts!




DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness, Cybin Inc and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.
 
market analyst (cover) by NicoElNino is licensed under Adobe Stock
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