How hot are psychedelic drug stocks right now?
There are two answers for that question. We can point to prices.
Psychedelic stock multi-baggers since the Compass IPO
Since the Compass Pathways IPO in September, four companies (including CMPS itself) have led the way in delivering multi-bagger returns for investors.
The chart below shows the weekly gains for these stocks (from the time of the Compass IPO), expressed in percentages.
But there is a second answer for that question. Look at the trading volumes we’re seeing with some of these companies.
When a stock rises significantly in price, it’s an indication that some investors are very bullish on the prospects for that company. When a stock rises significantly on heavy volume, it’s an indication that lots of investors are very bullish.
And what does it mean when a stock makes a huge jump to a new all-time high – on record volume? That’s called “a feeding frenzy”.
The feeding frenzies on psychedelic stocks
On Wednesday, both MindMed Inc (CAN:MMED / US:MMED / GER:MMQ) and Numinus Wellness (CAN:NUMI / US:LKYSF) made huge jumps to new all-time highs – on record volume. That’s a feeding frenzy with a double-exclamation point.
MindMed traded over 34 million shares on Canadian and U.S. exchanges. Numinus traded over 20 million shares. Fifty-four million shares in volume divided between two junior psychedelic stocks that weren't even publicly trading a year ago.
A lot of investor appetite. But now we’re seeing the heavy volume numbers spilling over into other companies – as the latest rally in psychedelic stocks broadens.
On Tuesday, Mydecine Innovations Group (CAN:MYCO / US:MYCOF) announced its first export of psilocybin mushrooms. After a one-day lag, the market caught up to the news. The stock has moved solidly higher the past two days, with daily volumes jumping back above 10 million shares.
Then on Thursday, Mind Cure Health (CAN:MCUR / US:MCURF) had its turn.
Mind Cure announced it is opening its first psychedelics-based treatment clinic – with plans to create a network of Canadian clinics. The stock closed 3 cents below its highest previous closing high, jumping 16.42% on the day.
More record trading volume.
Total Canadian and U.S. trading of Mind Cure exceeded 3 million shares. That’s very significant volume for a company that only has 54 million shares outstanding.
Call it another feeding frenzy.
All of this new demand for psychedelic stocks came in just two trading sessions. But trading volume for MindMed has been rabid almost continuously for more than two months. Numinus has seen huge-and-rising volume for over two weeks.
Investors are hungry for psychedelic drug stocks. And there is no indication that they have gotten their fill.
What’s behind all of this investor demand? Part of it is the story itself.
The Renaissance with psychedelic drugs is driving a Mental Health Care Revolution. New (and effective) psychedelics-based therapies are being developed for mental health disorders that afflict over 1 billion people.
The other factor powering demand for psychedelic stocks is raw capital.
Investment capital flooding into the psychedelic drug industry
Over the past 6 months, over $500 million in fresh capital has been pumped into the psychedelic drug industry. Roughly $400 million of that has flooded into the sector in just the last 3 months.
Financings are announced and quickly closed. Almost always, the word “oversubscribed” is being attached.
Both MindMed and Numinus recently upsized bought-deal financings within hours of the original announcement.
Institutions and high net-worth investors are lining up to throw money at these companies. And when they can’t get enough units via these private placements, they are happy to compete with retail investors for shares on the open market.
MindMed has recently raised CAD$60 million in back-to-back bought deal financings. It could easily have raised twice that amount. But that would have gotten dilutive for existing shareholders.
Numinus just raised ~CAD$15 million in its own financing and (obviously) could also have sold far more units.
Companies are raising lots of capital. Investors are (hungrily) soaking up these financings and then immediately bidding these psychedelic stocks higher.
It’s a strong position for these psychedelic drug companies to be in. And the market optics are so bullish that it is further stoking investor sentiment.
Investors see one feeding frenzy – and it leads to another.
Investors can still “get in early” with psychedelic stocks
As investors survey some of these big-gainers and rising demand, it’s easy to forget that we’re still very early in the evolution of this industry.
Compass Pathways and MindMed Inc both have $1+ billion market caps. But move past that and the numbers drop off rapidly: Field Trip Health (CAN:FTRP / US:FTRPF) (~CAD$200 million), Cybin Corp (CAN:CYBN / US:CLXPF) (CAD$182 million) and Numinus (CAD$132 million).
Even after the feeding frenzy on Mind Cure today, its market cap is still a lean CAD$42 million.
In a sector where individual drug deals and M&A transactions can range into the $100s of millions or even billions, these companies are still babies – babies with very robust growth curves.
As of this date, only one company (Compass Pathways) has a premier exchange listing. As more companies have their IPOs (or uplist), investors will start to get broader access to these stocks.
Returns for industry leaders in the psychedelics space are already even more robust than for the NASDAQ tech darlings. What sort of bounces will we see in these stocks when access improves and (for example) the Robinhood Mob is finally able to start trading psychedelic stocks – beyond just CMPS?
The numbers just keep getting bigger for psychedelic drug companies: share prices, trading volumes and financings. Translation? We are going to see even more-ravenous feeding frenzies on these stocks going forward.
Obviously, investors who position themselves in these companies ahead of future feeding frenzies are going to be wearing very large smiles.
Psychedelic stocks are “pumping up the volume”. As they do so, they are also pumping up a lot of investor portfolios.
DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness, Cybin Corp and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.