Due Diligence Critical for Emerging Psychedelics Space

Share structure key to psychedelics investment due diligence

At one point in the conversation, Skaife asked Osak about the share structure of Canadian companies, which he noted can be vastly different from US and European companies.

While Osak was a bit reluctant at first to engage the question, the advisor went on to say that share structure is a "fundamentally important question" for investors, both in general and for those who are interested in the growing psychedelics space.

As he explained it, the average retail investor should spend a vast amount of time doing due diligence on companies — including looking into their share structure — before spending any money.

"What often happens is we tell investors, 'Don't end up getting those preferential shares and end up having less rights than other early stage investors,'" Osak said.

Franks recommended that investors look at the balance sheets of companies and evaluate their debt line. This includes reading through debt agreements and understanding company obligations.

In addition, prospective investors looking at any industry should ask to see companies' shareholder agreements and their bylaws for corporate governance, according to Franks, since this will give a better perspective on the type of management structure.

Osak offered three rules for investors to follow: know exactly what your money is buying you, consult with an advisor before investing and look at the company's capitalization table. He said this means looking at company ownership, including what types of shares individuals have and what the implications are from a governance perspective.

"You don't want to be in a situation where you invest a lot of money in a company and have very little control for that money," Osak said. He noted that voting shares can allow other investors to come into the picture with a stronger voice and less investment. "You'll be on the outside because you haven't done your homework," added the business advisor.