Posted in Marijuana Investments

Missed Out on Marijuana Stocks? Psychedelic Stocks Could Be the Next Big Thing

 Posted by  Posted on November 25, 2020

Missed Out on Marijuana Stocks? Psychedelic Stocks Could Be the Next Big Thing © Provided by The Motley Fool Missed Out on Marijuana Stocks? Psychedelic Stocks Could Be the Next Big Thing

It was only a little over five years ago that Canopy Growth, the biggest pot stock based on market cap, was valued at close to $60 million. Today, Canopy’s market cap tops $9 billion. There are at least half a dozen other pure-play cannabis stocks with market caps of $1 billion or more. 

Some investors might feel like they missed out on the early boom for marijuana stocks. Don’t worry; the cannabis industry still has plenty of room to grow. If you really like getting in on the ground floor of a hot new market, though, there’s another angle you might want to explore: psychedelic stocks.

Gloved hands picking up a mushroom from a container full of mushrooms © Getty Images Gloved hands picking up a mushroom from a container full of mushrooms

A big opportunity

Psychedelic drugs have long been used recreationally and, for the most part, illegally. The potential medical uses for hallucinogens like LSD and mescaline have also attracted scientific attention over the last century. 

Today, the focus is on psilocybin, a psychoactive chemical found in certain types of mushrooms. Like cannabis, psilocybin is currently a Schedule I substance under the Controlled Substances Act. This makes it illegal in the U.S. at the federal level. The definition of Schedule I drugs states that they have high potential for abuse and no currently accepted medical use. 

Yet times are changing. Research is exploring the use of psilocybin as a treatment for multiple disorders. Major depressive disorder, panic disorder, and opioid addiction are just a few of the possible indications for the hallucinogen. 

Data Bridge Market Research projects that the psychedelic drug market will reach $6.85 billion by 2027. That level reflects a 16.3% compound annual growth rate (CAGR). It’s important to note that the market researcher’s estimate was made before residents of Oregon voted on Nov. 3, 2020, to legalize psilocybin for mental health treatment at licensed centers.

Mostly small players (for now)

Several companies are developing psychedelic drugs, but most are small players for now. U.K.-based Compass Pathways (NASDAQ: CMPS) is the biggest in the group of biotechs focused on psychedelic drugs. 

Gallery: 14 Best Biotech Stocks for a Blockbuster 2021 (Kiplinger)

Biotech stocks have been all the rage in 2020 as a number of companies have aspired to correct the COVID-19 pandemic. But then, biotech and biopharmaceutical companies been all the rage for much of the past few decades. The trend started within just a couple of months 40 years ago this fall. StatNews, which covers the industry, cites four events within two months as vital: First came 1980's Nobel Prize for Chemistry. Half went to Paul Berg at Stanford for his then-controversial work on recombinant deoxyribonucleic acid (DNA). The prize effectively conferred a blessing.Second was the initial public offering of Genentech, the first true biotech stock, which proved there was money to be made int his field. Then came the Stevenson-Wydler Innovation Act, encouraging federal labs to share and promote research with commercial potential. Finally came U.S. Patent No. 4237224, given to Stanford, which developed a basic method for recombining genes. Modern biotech begins with DNA, first discovered in the 1950s, and the chemical interactions it induces to create life. Biochemists today work to design drugs that inhibit or activate enzymes driving biological processes.   Many of the largest drug companies are now being reorganized around these opportunities, whether through internal research, buyouts and/or partnerships. Giant, pure biotech stocks have emerged to pursue them, too. Scientists with promising research also have launched companies sometimes worth billions of dollars before they even have a treatment on the market. Here, we'll look at 14 of the best biotech and biopharma stocks to buy for 2021. We'll divide these opportunities into three buckets: 1.) Big Pharma stocks that are undergoing (or have undergone) shifts to become more biotech-minded; 2.) large pure-play biotech companies; and 3.) "emerging" biotech stocks, some of which have a specific focus on COVID-19. SEE MORE 15 Best Stocks to Buy for the Joe Biden Presidency Data is as of Nov. 15. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

Compass conducted its initial public offering (IPO) in September. Its market cap quickly vaulted above $1 billion. The company is currently evaluating its lead pipeline candidate, COMP360 psilocybin therapy, in a phase 2b study for treatment-resistant depression. 

Mind Medicine (OTC: MMED.F) has a market cap of around $435 million. The company hopes to soon move forward with a phase 2a study of LDS microdoses in treating adult attention deficit hyperactivity disorder (ADHD). This study will be conducted in Switzerland and the Netherlands. Mind Medicine has also filed for Food and Drug Administration authorization to begin a phase 2b study of its LSD therapy in treating anxiety disorders.

All other companies developing experimental psychedelic therapies are much smaller than Compass Pathways. Cybin is a case in point. The nano-cap stock currently has a market cap under $15 million. Cybin is developing a psilocybin therapeutic candidate targeting major depressive disorder.

But while Cybin is tiny, it’s attracting talent from big drugmakers. The company hired Doug Drysdale as CEO in September. Drysdale was head of mergers and acquisitions at Actavis (now owned by Teva Pharmaceutical). He also served as CEO of two drugmakers, Pernix Therapeutics and Tedor Pharma, before joining Cybin. 

An early market to closely watch

Psychedelic stocks won’t have as big of a market opportunity as cannabis stocks do. Cannabis is legal nationally in Canada and is legal in some form in 35 U.S. states. Psychedelic drugs are much more heavily restricted. The companies with the greatest opportunities in the psychedelic market are pursuing the FDA approval path, similar to what GW Pharmaceuticals did with its CBD drug Epidiolex.

However, it’s still really early. For investors seeking the next big thing before it becomes the next big thing, the psychedelic drug market appears to be one to check out.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SPONSORED:

10 stocks we like better than COMPASS Pathways plc

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and COMPASS Pathways plc wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of November 20, 2020

 

Author: CSN