How to Pick a Psychedelics Stock

How to pick a psychedelics stock?

How to pick a psychedelics stock: Look for industry benchmarks

Since the launch of Mind Medicine (NASDAQ:MNMD,NEO:MMED) last year, the availability of psychedelics stocks has picked up rampantly across various exchanges. Alongside this increase in public companies has come newfound interest in what really lies at the core of this industry.

There is plenty to be excited about in the long term, but investors should also remember to keep in mind the clear red flags related to this investment avenue.

“Right now is a super exciting time for investors,” Matt Carr, chief trends strategist at the Oxford Club, told INN. He has expressed a bullish stance on the current leading crop of psychedelics names.

The investment expert affirmed that no one should expect fireworks right away — instead these are the brutally early days for psychedelics investments. “I wouldn’t even say that we’re in the earliest innings of a game, because I don’t even think we’re actually on the field quite yet,” he said.

When it comes to a sector that’s in its early stages, Carr said he likes to look at the biggest companies out there and use those as benchmark comparison points.

When it comes to psychedelics stocks, Carr currently uses COMPASS Pathways (NASDAQ:CMPS) as the company he compares against others. But even advanced players are just getting started.

“When you’re looking at it from, let’s say, a traditional, analytical or fundamental side, you’re not going to be able to use those sorts of metrics at the moment in the industry, because COMPASS Pathways is reporting earnings, but there’s really not much earnings to report,” Carr said.

How to pick a psychedelics stock: Sector taking cues from pharma market

The primary business model taking over in the psychedelics industry is novel drug development, similar to the kind seen in the pharmaceutical and biotech spaces.

Psychedelics companies have, for the most part, embarked on drug-making paths in which they test how compounds based on psychedelic substances can treat ailments or other conditions.

All of this is done in a clinical environment with the aim of creating products that medical regulators believe can be used safely and effectively.

“Right now you’re going to have to evaluate all these companies like clinical-stage biotech (stocks), which in and of itself is tricky,” said Carr. “At this time, you’re looking for those clinical trials, you’re looking for any sort of research, partnerships with major institutions.”

“I want to see those deals be made with major research institutions, clinical trials moving forward and having positive results from those trials, (because) those are going to lead to big jumps in share price.”

That said, the expert noted that even when a company gets to a more advanced situation where data may seem very promising and a team may have top-of-the-line experts attached to a study, sometimes a trial may still lag behind and eventually come up empty.

How to pick a psychedelics stock: Consider industry sub-sectors

The psychedelics industry may be new ground for a whole slate of investors, but for those who’ve been in the industry longer there are already key distinctions available for those looking to get started.

In addition to the different categories within psychedelics, there is also a push for specialization, according to Marik Hazan, founder and CEO of Energia.

“There’s more players, there’s more competition — drilling down can be good,” Hazan told INN. However, he did emphasize that most companies are still selling a broad approach to the sector.

Outside of drug development, Hazan said he sees segments within psychedelics in the form of psychedelic drug clinics, cultivation, extraction, retreat centers, healthcare technology, education, media and consumer packaged goods.

“I think that everyone’s looking to see how they can build robust companies,” said Hazan. “I think that there’s a lot of confidence that’s been built, but there’s also still a desire to assuage the fears of investors, especially … the very beginning of investors flowing into the space.”

Hazan has been involved with the psychedelics business for some time now, but he admitted to being behind the ball in terms of the amount of investors expressing interest in the space.

At one point he surveyed the investing landscape and thought all the people jumping into the space had arrived already. “I’m just realizing now through conversations it hasn’t even started yet,” he said.

The private investment executive said he expects to see “magnitudes” of investors join the psychedelics sector in the next two to three years.

How to pick a psychedelics stock: Investor takeaway

Hazan thinks there are two types of investors in the psychedelics space.

“There’s a few different ways that investors are currently looking at it. And depending on the lens that they’re looking at … they’re taking sort of a different path,” he told INN.

There are those — according to Hazan — who are jumping in now and may feel disappointed that they’re not experiencing the tremendous runs seen in cannabis and cryptocurrencies alike. Then there are people looking at the sector a bit more delicately and hoping to create some meaningful, lasting impact based on the industry’s potential.

“At the end of the day, there’s still a pretty small sample size of really promising companies,” said Hazan. “We’re nowhere where we’ll be several years from now.”