After a brief flurry when MindMed Inc (US:MNMD / CAN:MMED) commenced trading on the NASDAQ, psychedelic stocks have resumed their 2021 slumber.
Has the sector been in hibernation? Hardly.
Lots of industry news
Just this week, Numinus Wellness (CAN:NUMI / LKYSF) reported its Q2 results and provided some exciting updates on its clinic operations and R&D. Mydecine Innovations Group (CAN:MYCO / US:MYCOF) reported its full-year results and updated investors on its Phase II clinical trial.
Field Trip Health (CAN:FTRP / US:FTRPF) announced the opening of a new mental health treatment clinic – and near-term plans to add five more. Novamind Inc (CAN:NM / US:NVMDF) announced its clinics network is doubling in size, with four new locations.
Psyched Wellness (CAN:PSYC / US:PSYCF) announced a new supply agreement for Amanita Muscaria, to support its AME-1 extraction. MindMed announced it was expanding its drug R&D into pain treatment (“Project Angie”), one of the largest of all medical treatment markets. Red Light Holland (CAN:TRIP / US:TRUFF) announced a pending patent for its microdosing kits.
Mydecine was in the news again, announcing a new partnership to advance its drug synthesis operations. Field Trip was in the news again, announcing it has just received DTC eligibility.
What do all of these news release have in common?
Apart from all being material news, in each case the companies either saw all their stock gain on the news get clawed back the following day, or the stock simply went down on the day of the news.
Low trading volumes persist
The root cause of companies not being rewarded for material news is the same: low volume. Investors sleeping through all this news.
Some investors will object to that characterization. They will counter that traders aren’t “sleeping” at all, they are gambling – on cryptocurrencies.
However we want to frame it, after trading volumes briefly surged for (in particular) MindMed and Numinus last week, they have fallen flat again.
This is the mirror opposite to the 2020 rally, where trading volumes were nearly off the charts. But psychedelic stocks didn’t have to battle the headwinds of a wobbly U.S. tech sector in 2020.
With NASDAQ stock performance much weaker in recent weeks, investors have been pulling money out of stocks – and gambling on cryptocurrencies.
Dogecoin, which was created as a joke and has no limits on coin-creation has a “market cap” (market size) of ~US$50 billion. Ethereum recently made the news for now being larger than retailing giant Walmart.
It takes a lot of gambling capital to fuel a mania that large. The salient question for investors in psychedelic stocks: will cryptocurrencies continue to suck most of the incremental investing capital out of markets?
A dubious future for Crypto-mania
Manias never end well, whether it’s a real estate mania, a stock mania, or a tulip mania. And there is even more reason to expect that Crypto-mania is doomed.
In previous manias, the bubble du jour was the only manic bubble of that time. Today, as noted, pseudo-investors have been rotating from one mania to the next.
This means that the crazed momentum-chasers currently throwing money at these coins won’t simply jump ship on any extended slump – out of fear.
They will also abandon these cryptocurrencies on any sustained period of sideways trading – out of boredom. There are plenty of other markets where they can chase momentum.
Nothing goes up forever. And the longer that anything goes straight up, the sooner it reaches its peak.
To answer our original question: no, cryptocurrencies can’t continue to suck most investor capital out of markets. Like a wildfire, they will burn out from consuming all of their own oxygen.
When?
Impossible to answer. There is no one with such a mastery of human psychology that they could precisely predict the end of a mania.
Manias typically persist longer than any rational (sane?) person would ever expect. But do you want to bet on that quasi-logic – and then watch as the bottom falls out from under you?
Will psychedelic stocks be the next mania?
Investors in psychedelic stocks are not market-maniacs.
They are sober investors who gravitated to this sector on the basis of numerous extremely positive fundamentals. And they include some of the biggest names from both Silicon Valley and Wall Street.
At the same time, during the furious rally in the fall of 2020, no one can deny that much of the sky-high trading volume for these stocks came as momentum-chasers piled into the sector.
Companies with large share structures were turning over their entire float in sometimes less than a week’s trading.
What has changed since 2020? The fundamentals for the sector have improved in every respect.
- Much more capital in the sector
- Drug R&D advancing and broadening
- Clinic networks rapidly evolving
- Much greater commitment in the industry to supporting IP, such as digital therapeutics
- Rapidly worsening health catastrophe/rapidly expanding investment opportunity
Just like no one can predict when a mania will end, no one predict when (or where) the next mania will begin.
But lightning can strike twice. The psychedelic drug industry (and the public companies who populate it) is a more attractive opportunity for investors than ever.
With a steady stream of individual and sector-wide catalysts supporting this industry, another lightning-strike looks more rather than less likely.
The psychedelic drug industry doesn’t need a(nother) “mania” to become successful. There are more than enough drivers for this exciting, emerging industry. And more than enough capital entering the industry to power these companies to the finish line.
Sadly, though, another run of manic stock-buying of these companies is likely the quickest path from the outhouse to the penthouse.
DISCLOSURE: The writer holds shares in MindMed Inc and Numinus Wellness.