Sector Overview—Psychedelic-Inspired Pharmaceuticals

References to LSD and psilocybin typically evoke thoughts of 1967’s Summer of Love, Woodstock, and Grateful Dead concerts, not Wall Street. But that’s rapidly changing, as companies turning psychedelic drugs such as acid, magic mushrooms, and ecstasy into medicines are being eyed in 2020 as a new hot investment sector.

Groovy, eh!

In fact, two Canadian companies—Toronto-based Mind Medicine (MindMed) Inc. (NEO: MMED) and Vancouver-based Champignon Brands (CSE: SHRM)—are each being touted by the media as the world’s first publicly traded psychedelics pharmaceutical company. While SHRM was truly first to go public with its IPO (February 28), its work on psychedelic medicines is currently a secondary focus to its marketing of non-psychedelic mushroom products. MMED, on the other hand, which IPOed on March 3, is considered a pure psychedelics pharmaceutical play.

Whatever the case, these companies and others working on turning mind-trip drugs into pharmaceuticals may be proving that marijuana is truly a gateway drug. This is evidenced by the buzz this emerging sector is receiving in the investment world, which is akin to the buzz the marijuana sector stirred when it started taking off in 2014. Like the marijuana sector, this initial interest in psychedelics is being spurred by potential medicinal use. While some investors may see hints of promise in potential recreational psychedelics, the chances that the public will be allowed to legally pursue happy trails on Main Street anytime soon are likely slim. That said, psilocybin is legal in several countries, and has been decriminalized by a few others, along with the U.S. cities of Denver, Oakland, and Santa Cruz. Thus, magic mushrooms likely hold the most promise for any eventual possible recreational market.

What a Long, Strange Trip it’s Been

To understand how trippy street drugs have emerged as an investment class, you need to know a bit of their history. Psychedelics didn’t just emerge with the hippies and counterculture of the 1960s; various cultures throughout history—from ancient Greeks and Hindus to North American Indians—utilized psychedelic plants in religious rites and for meditative purposes. Many animals, it should be noted, also have a strong affinity for plants and fungi that contain psychedelic compounds. Modern-day research into psychedelics as a neurological medicine kicked into high gear in the 1950s and early ‘60s, after Sandoz Labs sent thousands of samples of LSD—discovered in the 1940s by Dr. Albert Hoffman—to researchers around the world. Between 1950 and 1965, more than 40,000 patients were dosed in various studies that resulted in more than 1,000 research papers, some with promising results in treating depression, addiction, and other conditions. Meanwhile, other researchers started looking into the potential medical promise of using psilocybin, mescaline, and other psychedelics.

All of these research efforts came to a grinding halt in the mid-1960s, after the U.S. Food and Drug Administration (FDA) shut down all research and made the drugs illegal, due to their widespread adoption by youth for recreational purposes. Countries around the world followed suit, and when other psychedelics with medicinal promise emerged in the following decades—such as MDMA (ecstasy)—research efforts were quickly halted by governments whenever recreational use started gaining popularity. This despite any encouraging medical-use findings in the initial research.

From Being “Far Out” to Gaining “Respectability”  

Starting in 2000, though, the FDA and U.S. Drug Enforcement Administration have been easing barriers to research, and scientists are once again finding therapeutic uses for the drugs. And these findings are leading to increasing numbers of clinical drug trials that could help bring these psychedelics to market as legal pharmaceutical drugs.

Conditions psychedelic drug studies are treating in the clinical and pre-clinical trial stage include:

• End-of-life pain and anxiety treatment for late-stage cancer patients
• Depression
• Treatment-resistant depression
• Anorexia nervosa
• Anxiety disorder
• Post-traumatic stress disorder
• Lyme disease syndrome**
• Alzheimer’s disease**
• Attention Deficit Disorder
• Opioid use disorder
• Alcoholism

Meanwhile, The Johns Hopkins University School of Medicine, which was first to the plate with renewed psychedelic research in 2000—and has since established the world’s largest psychedelic research center—continues to pump out new research supporting the use of psychedelics for therapeutic uses.

Wanna Go Tripping on Wall Street and Bay Street?

Thus, with the recent fast rise of the marijuana investment sector, regulatory easement, vigorous positive research, growing media coverage, and two IPOs, psychedelics seem to be emerging as a distinct and growing sector in the stock market. As a sector, psychedelics—like marijuana***—could find favor within the $30-trillion-plus mega trend of environmental, social, and governance (ESG) investing, which realized 34% growth between 2016 and 2019.

As a nascent sector, though, what of its valuation? With lots of media attention over the past few months, pundits are starting to weigh in, with a $5 billion market valuation the most often quoted figure. Of course, that estimate is likely to rise, as so often happens in emerging sectors. Case in point being found with this recent headline: “A $5 Billion Market Valuation for Psychedelics May be Too Low.”

At this point, and for the foreseeable future, these early sector valuation estimates are based solely on the therapeutic market, and the sector’s ascent is not driven by recreational market potential. As MindMed co-founder J.R. Rahn told Forbes magazine: “This isn’t the 1960s all over again. I want nothing to do with those kinds of folks who want to decriminalize psychedelics.”             

Psychedelics-as-Medicine Companies We’re Keeping an Eye On

Mind Medicine (MindMed) Inc. (NEO: MMED) 

MindMed, which has trademarked the slogan “Psychedelic Inspired Medicine™,” discovers, develops, and deploys psychedelic-inspired medicines to alleviate suffering and improve health. Company initiatives include:

• Preparing the world’s first Phase II trial of using microdoses of LSD to treat adult attention deficit disorder (ADHD).
• Preparing a Phase II study that uses a synthetic derivative of Ibogaine (a psychedelic derived from the West African Iboga shrub) to treat opioid addiction.
• Patenting a drug in collaboration with Basel University’s Liechti Laboratory that significantly limits the hallucinogenic effects of LSD. The LSD neutralizer could help researchers expand appropriate uses of the drug and improve its potential therapeutic use.
• Researching LSD, psilocybin, and ketamine to treat mental health-related conditions.

MindMed, which was trading at $0.56 as of this writing, raised just over $24 million before going public through the issuance of more than 78 million common shares at $0.33 each. Since the IPO, the share price has risen by up to 100%, and the company has a current market cap of around $158 million (Cd.).     

Champignon Brands Inc. (CSE: SHRM)

As implied by the name, Champignon Brands is focused on mushrooms. With an established line of teas and other products that use non-psychedelic mushrooms, the company expanded into the development and commercialization of treatments based on psilocybin by acquiring the small, private biotech research firm Novo Formulations and collaborating with another called Tassili. It is believed that SHRM will acquire both Tassili and another firm, Altmed, the latter of which established Canada’s first-ever treatment center that provides rapid-onset treatment for persons with mood disorders. Company initiatives include:

SHRM issued 18,916,667 common shares for $0.15 per share, raising more than $2.8 million. Since its IPO, the company’s share price has risen by up to 500%, currently trading at $1.76, giving the company a market cap of just over $279 million.

Numinus Wellness Inc. (TSXV: NUMI)

Numinus is a fully integrated operating company that operates a wellness centre, cannabis testing and research facility, and is licensed by health Canada to test, sell, distribute, and eventually conduct research on psychedelic substances. Through a merger with Salvation Botanicals and expected sustainable annual revenues of $25 million from cannabis extraction, the company went public earlier this month via a reverse merger (RTO) with Rojo Resources. NUMI, it should be noted, may also be eyeing potential recreational market opportunities, given that the legality of psilocybin (decriminalization in Denver, etc.) is referenced in some of its investor outreach materials. Plans for the rest of the year include:

• Fourth Quarter cannabis processing and extraction licensing by Health Canada
• Acquire and integrate two to four existing Canadian wellness centres with the Numinus model.
• Receive inputs from the Multidisciplinary Association for Psychedelic Studies (MAPS) on space/clinic requirements for trials.
• Amend the Controlled Substances Act dealer’s license to include import/export, packaging, and R&D.
• Begin advanced therapeutic, evidence-based patient studies in psychedelic therapies under a Memorandum of Understanding with the British Columbia Centre on Substance Abuse.

With a market cap of just over $62 million, NUMI’s share price has ranged from $1.55 to $0.76 since the RTO and was trading at $0.80 as of this writing. The RTO issued more than 3 million shares at $0.32 and 18.2 million at $0.50.