Low Tide For Psychedelic Stocks With Media, Investors Distracted

Low Tide For Psychedelic Stocks With Media, Investors Distracted

  • The U.S. election (and related events) have been a major distraction for markets, investors and the media
  • Both share prices and trading volume has slipped for most psychedelic stocks
  • Several of the leading psychedelic stocks in 2020 are currently priced at BIG discounts

When is the best time to scavenge for flotsam on the beach? Low tide.

When is the best time to scoop up bargains in stocks? Low tide.

Trading in psychedelic stocks over the past month can only be described as “low tide”.

Valuations have retreated from highs set in early December. Trading volumes have tapered off significantly for most of the leading companies.

Why?

Part of the answer is that (after a huge rally) the sector experienced a normal – healthy – correction. The remainder of the answer can be summed up in two words: U.S. election.

U.S. election, Trump impeachment are major distractions

The presidential election in the United States in November has been more than contentious.

First there was the disputed results. More recently has come civil unrest and (now) the impeachment of former President Donald Trump.

For the media, it’s a ratings bonanza and a feeding frenzy. All U.S. politics, all of the time.

For pretty much anything else outside of the coronavirus pandemic (and COVID vaccines), there has been a media vacuum.

Psychedelic Stock Watch has previously pointed to the robust (and favorable) coverage of the emerging psychedelic drug industry by the mainstream media.
 

Yet over the past 6 weeks, it’s as if the sector had suddenly been swallowed up by the Earth and disappeared.

Naturally, investors too are distracted – especially U.S. investors.

These political events are serious. The final outcome of the events is serious. It could influence both markets and investor behavior.

At the same time, life goes on.

For the Rest of the World and the global economy, it’s business as usual. Industries rise and fall. Market opportunities continue to be present.

Low tide for psychedelic stocks = high value for investors

One way or another, the U.S. will move past its current political uncertainty and social unrest.

When that happens, there will still be a Mental Health Crisis. Indeed, recent events in the U.S. have likely further exacerbated mental health issues among Americans.

The entire world is in a Mental Health Crisis. Over 1 billion people are afflicted with stress-related disorders like depression, anxiety, addiction and PTSD.

Clinical studies indicate that psychedelic drugs have enormous potential to revolutionize these treatment markets.
 

The COVID pandemic has caused an explosion in the numbers of people affected by (in particular) depression, anxiety and substance abuse. The longer the pandemic lasts, the greater the need for these emerging psychedelic medicines.

Of equal importance, economic research on psychedelic drugs also shows huge potential to save precious healthcare dollars. An economic study by MAPS (on the use of MDMA for PTSD) indicated treatment savings of $103,000 per patient.

Patients need the medicines/therapies. Governments need the cost savings.

Everyone needs better treatment results. The Mental Health Crisis already costs the global economy over $1 trillion per year in lost productivity alone. The Lancet Commission estimates productivity losses (due to mental health issues) at $16 trillion between now and 2030.

Multi-billion-dollar treatment markets are ripe for conquest. Governments, insurers, medical practitioners and patients all have strong incentives to adopt these psychedelics-based therapies.

Follow the money, follow the Big Players

The sector is very well capitalized.

In just the past four months, public and private players in this industry have raised in excess of US$500 million.

There is enormous institutional interest in the sector. And a long list of big-name investors have already staked out major positions in this industry.

Peter Thiel, Kevin O’Leary, Bob Parsons, Mike Novogratz, Tim Ferris, Bruce Linton and many other iconic investors have become involved in the space.

Drug development is expensive. Money talks.

And what that money is saying today is “invest in psychedelic stocks”. It’s not a coincidence that we see both a plethora of big-name investors and a wealth of investment capital converging on the psychedelic drug industry.

Revolutionary drug-based treatments for multi-billion-dollar markets, in a time of Crisis. Can you say “opportunity knocks”?

Biggest supporter of psychedelic drug medicine: the U.S. military

As already noted, there is an enormous need for psychedelics-based medicine among the general population. But most of these drugs are still prohibited.

Why should we expect drug laws to be liberalized in the near future for some/many of these psychedelic drugs?

Look no further than the U.S. military.
 

The Department of Defense is facing its own Mental Health Crisis within the ranks of serving personnel. The attrition rate is nothing short of devastating.
 

  • 73,000 U.S. veterans have committed suicide over the past 14 years
  • About 11 to 20 out of every 100 veterans (or between 11 and 20%) who served in operations Iraqi Freedom and Enduring Freedom have PTSD in a given year.
  • About 12 out of every 100 Gulf War Veterans (or 12%) have PTSD in a given year.
  • About 15 out of every 100 Vietnam veterans (15%) were currently diagnosed with PTSD when the most recent study of them (the National Vietnam Veteran Readjustment Study) was conducted in the late 1980s. It’s believed that 30% of Vietnam veterans have had PTSD in their lifetime.

Mental health issues are ravaging the U.S. military from within. Meanwhile, only a small minority of Americans outside of the service are even fit to enlist.
 

While the U.S. government engages in saber-rattling on multiple fronts, there is a serious question as to whether the U.S. military is currently capable of sustaining any major war effort.

Is it any wonder that the DoD has contributed $27 million for psychedelic drug research, making it one of the world’s largest individual donors?

The general population needs legalized psychedelic drugs. The U.S. military needs legalized psychedelic drugs even more.

Psychedelic stocks on sale…for how long?

For all of the reasons above, most psychedelic stocks went on a tear in the last 3 ½ months of 2020, triggered by the Compass Pathways (US:CMPS) IPO.

Both MindMed Inc (CAN:MMED / US:MMEDF / GER:MMQ) and Numinus Wellness (CAN:NUMI / US:LKYSF) produced ten-bagger returns at their peak.

Several other psychedelic stocks also delivered multiples for investors in 2020.

As already mentioned, most of these companies have pulled back substantially from their 2020 high.

Why did we choose those four companies? Because back in October, as the rally was really heating up, we identified these four companies as “the four best-performing psychedelic stocks”.
 

This is the sort of “sale” that should get any serious investor excited.

Psychedelic drug stocks are on sale. But for how long?

Apart from the numerous Big Picture drivers for this industry, several market catalysts loom in 2021.

ATAI Life Sciences has announced plans for an early 2021 IPO. Speculation is that this could come as soon as the end of January.

ATAI is the best-capitalized player in the industry. It is expected to immediately become the new industry leader when it makes its public debut.

When CMPS went public – and became the industry leader – it sparked a sector-wide rally.

Meanwhile, MindMed itself is seeking to uplist on the NASDAQ. A decision on its application is expected no later than Spring 2021.

Beyond those obvious market catalysts are the research catalysts. Numerous psychedelic drugs initiatives are currently in Phase 2 or even Phase 3 clinical trials.

Big news on at least some of this R&D is expected this year. Indeed, previous clinical results from MAPS’ clinical trials using MDMA for PTSD (now in Phase 3) are very favorable.
 

A train about to leave the station

It was low tide for psychedelic drug stocks in early September 2020. Then the whole sector went on a tear.

It’s low tide for psychedelic stocks again today – an artificial low tide that is the consequence of the major political circus currently underway in the United States.

That circus will end. So too will the buying opportunity in psychedelic stocks.

DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.
 

Published at Tue, 19 Jan 2021 06:00:06 +0000

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