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Buy a Lottery Ticket or Invest in a Psychedelics Company? – It’s Long Odds Trying to Pick a Winner in Psychedelic Stocks

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psychedelic stocks

If you are a regular reader of Cannabis.net you may remember our write-up of the Benzinga Psychedelics Show in Miami where we stated, if you thought cannabis stocks and investing was the Wild West, well then psychedelics are on Mars and Jupiter right now.  We had presentations by people dressed up as Robin Hood and Roman warriors carrying shields.  We predicted that there were be massive failure and zombie companies out there that will end of going nowhere fast.

It appears the rest of the stock research world is hot on our trail!

In a recent report, Water Tower Senior Research Analyst Robert Sassoon has boldly predicted a continued shakeout in the psychedelics market. According to Sassoon, the industry is poised for ongoing consolidation, and there will be a notable reduction in the number of publicly traded psychedelic companies.

This anticipated shakeout, he argues, is intricately linked to the current state of the industry’s hype cycle and the hurdles that need overcoming for psychedelic-assisted therapies (PATs) to thrive in the market.

The Psychedelic Winter

Amidst a surge in clinical studies delving into the transformative potential of psychedelic drugs, an intriguing paradox has emerged within the market dynamics – a notable disparity between the expanding realm of scientific exploration and the lagging valuations of companies operating in the psychedelic sector.

Robert Sassoon, the Water Tower Senior Research Analyst, illuminates this incongruity by shedding light on the prevailing bearish trend in psychedelic stocks, drawing a compelling parallel with the challenges witnessed in the cannabis industry.

Sassoon’s scrutiny focuses on the AdvisorShares Psychedelics ETF (PSIL), a representative index of the psychedelic sector. Its trajectory since its listing in mid-September 2021 mirrors the challenges faced by the industry as a whole.

The ETF has undergone a staggering 85% decrease in value, underscoring the persistent struggles of psychedelic stocks in the public market. This significant decline in valuation symbolizes the broader headwinds confronting companies navigating the uncharted waters of psychedelic medicines.

Further accentuating the analogy with the cannabis industry, Sassoon draws attention to Canada’s Horizons Psychedelic Stock Index ETF (PSYK). This ETF, representing the psychedelic landscape, has faced a comparable downturn since its listing on the NEO exchange in January 2021.

The echoes of the struggles witnessed in the cannabis sector reverberate through these declines, reflecting the challenges that innovative and pioneering industries often encounter in their early stages of development.

Catalysts on the Horizon

While acknowledging that investors may not witness immediate benefits, Robert Sassoon astutely points to a series of catalysts looming on the horizon, poised to breathe life into the psychedelic industry and potentially steer it towards a path of recovery. Chief among these catalysts is the pivotal progression of clinical trials, a crucial step in substantiating the therapeutic efficacy and safety of psychedelic-assisted therapies (PATs).

At present, only two programs within the psychedelic sector are slated for Phase III trials, signifying a significant milestone in the journey from experimental studies to the cusp of regulatory approval. However, Sassoon soberly notes that the most critical developments arising from these trials may not unfold until 2024.

The anticipation surrounding the outcome of these trials is palpable, as they represent a critical juncture in establishing the viability of psychedelic therapies for widespread adoption.

A measured dose of patience is warranted, as Sassoon advises investors that the final results of these Phase III trials might not materialize until 2026 or 2027.

This prolonged timeline underscores the meticulous nature of the regulatory process, emphasizing the need for comprehensive and rigorous evaluations before psychedelic-assisted therapies can attain the green light for clinical application.

In navigating the complex terrain of the psychedelic industry, launching a viable product is a pivotal factor that holds the key to the sector’s future trajectory. The Multidisciplinary Association for Psychedelic Studies (MAPS), renowned for pioneering MDMA therapy, finds itself at the forefront of this challenging landscape.

However, the path ahead is fraught with obstacles, and one of the most significant challenges comes from stiff competition from Johnson & Johnson’s (JNJ) Spravato, a breakthrough therapy already available to patients.

MAPS finds itself at a critical juncture, navigating the uncharted territory of seamlessly combining therapy and psychedelic drugs. The successful integration of these elements is not merely a logistical challenge but a pioneering endeavor that could potentially set a precedent for others within the industry.

The spotlight is on MAPS to unravel the complexities of this novel therapeutic approach, establishing a roadmap that could redefine the standard for psychedelic-assisted therapies.

Insurance companies pose yet another challenge, as the cost of psychedelic-assisted therapy sessions is currently a deterrent for traditional payors. The industry’s growth could be significantly boosted if insurance companies become more amenable to covering these treatments, broadening the market’s appeal.

MAPS Dilemma: IPO or Not?

A prominent focal point within Sassoon’s report demands careful consideration: the potential contemplation of an initial public offering (IPO) by the Multidisciplinary Association for Psychedelic Studies (MAPS). As an entity committed to the principles of nonprofit status, MAPS has steadfastly adhered to its dedication, steering clear of the conventional trajectory of going public.

Nevertheless, amidst the seismic shifts in the pharmaceutical landscape and a transformative period for the psychedelic sector, the pivotal question of whether MAPS will opt for an IPO now takes center stage.

MAPS, widely acclaimed for its pioneering efforts in advancing MDMA-assisted therapy for PTSD, stands as a beacon of hope in the burgeoning realm of psychedelic medicine. The organization’s nonprofit status has afforded it the flexibility to navigate the delicate equilibrium between innovation and altruism.

Yet, the journey ahead is fraught with financial challenges, especially about the potential marketing endeavors associated with its MDMA drug, contingent on approval by the FDA.

Sassoon’s insightful analysis predicts that the pressure on MAPS to secure additional funds might force a reevaluation of its stance on an IPO. The report suggests that, despite the organization’s reluctance, an IPO could be the most viable avenue to ensure the financial backing for the extensive marketing endeavors associated with bringing its revolutionary therapy to the masses.

Conclusion

The psychedelic industry is at a crossroads, facing both challenges and opportunities. Sassoon’s report sheds light on the hurdles that currently impede the market’s growth, from clinical trial timelines and product launches to insurance reimbursement and the strategic decisions of key players like MAPS.

While the industry grapples with a winter of skepticism and market turbulence, the potential catalysts identified by Sassoon suggest a brighter future. As clinical trials progress, products hit the market, and insurance barriers break down, the psychedelic industry may well emerge from its current shakeout stronger and more resilient than ever.

Whether MAPS chooses the IPO route or not, its journey will likely play a pivotal role in shaping the industry’s trajectory in the years to come.

Investors, researchers, and industry enthusiasts will watch as the psychedelic landscape evolves and transforms, navigating the complex terrain of regulation, public perception, and financial viability.

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