- The September 2020 IPO for Compass Pathways ignited a huge rally for the sector last year
- Psychedelic stocks are better positioned today for a big rally than prior to the CMPS IPO
- The combination of an atai IPO and MindMed uplisting should produce a more powerful catalyst than the CMPS IPO
As the trough in psychedelic stocks extends into its fourth month, even patient investors are starting to lose patience in waiting for this exciting emerging sector to commence its next leg up.
For months now, investors in psychedelic stocks have been eagerly looking ahead “on the horizon” for a couple of important sector catalysts.
New NASDAQ listings for psychedelic stocks
Private industry leader, atai Life Sciences, has already announced its plans to go public (on the NASDAQ) this spring. Atai added an exclamation point to this when it raised another $157 million in its Series D financing in March.
Public industry leader, MindMed Inc (CAN:MMED / US:MMEDF) has declared its intention to seek to uplist on the NASDAQ. That was way back in September.
Uplisting to the NASDAQ can be a process completed in as little as 4 – 6 weeks. However, some of the more obscure listing requirements, specifically the NASDAQ’s “seasoning rules”, block MindMed from uplisting until May of this year.
The result of these NASDAQ listing requirements and atai’s own internal timetable for going public is that we will very likely see these two events occur with weeks – or possibly even days – of each other.
Psychedelic Stock Watch has been one of the industry commentators pointing to these events as important drivers for companies in this sector.
Why an atai IPO will be a pivotal event
Back in the fall, talk of an atai IPO or MindMed uplisting was viewed as the icing on the cake in a fast-rising sector. Today, after three tough months of sliding share prices and declining trading volume, these events are now looking more like the “cake” itself.
There are three reasons (two of which are closely related) as to why an atai IPO should be a major shot-in-the-arm for the whole industry.
- The general IPO fever in markets
- IPO will dramatically increase visibility of the sector
- IPO will drive investors into other psychedelic stocks
It’s not a coincidence that IPO filings reached a 20-year high by November 2020.
Central banks have been flooding the global economy with more of their newly printed funny-money than at any other time in history. Much of that cash ends up flowing into markets, driving up share prices.
Investors can see this. So, when a promising new company makes its public debut, a feeding frenzy typically ensues.
With atai clearly positioned to become the new industry leader among public companies in this space, there is every reason to believe we’ll see a particularly acute attack of “IPO fever”. In turn, this rabid investor sentiment will have ripple effects across the sector.
With all the media attention that atai’s IPO will attract, this will inevitably attract a lot of new investors (and investor dollars) into these psychedelic stocks.
Some of those investors will arrive with the clear intention of buying into more than just atai. As Psychedelic Stock Watch recently observed, with the huge revenue potential from psychedelic drug development there is plenty of room in this sector for multiple winners.
Other investors will be purely focused on atai. However, they could (will?) experience sticker-shock when they try to acquire a position.
Compass Pathways (US:CMPS) was priced at $17 for its IPO. But trading opened near $25 and few investors were able to get in below $30.
There are many reasons to expect competition for atai shares on its IPO day to be even more intense. We offered our opinion on how/why most investors wanting to invest in atai will be able to find better value by (first) buying into other stocks.
In short, there is every reason to believe that the atai IPO will be a sector-wide catalyst for psychedelic stocks.
Why a MindMed uplisting on the NASDAQ will be a pivotal event
There are also three reasons to expect a MindMed uplisting to be an important sector driver, and again two of these reasons are closely related.
- Uplisting will dramatically increase visibility of the sector
- IPO will drive investors into other psychedelic stocks
- More psychedelics companies will pursue a NASDAQ uplisting
As with the atai IPO, a MindMed NASDAQ listing will bring in a lot of new U.S. investors to these stocks – from the large population of U.S. investors who simply don’t invest in OTC stocks. But (as with the atai IPO) this event should benefit more than just MindMed itself.
If MindMed gets the expected bounce from a NASDAQ uplisting, then it too may start to look too expensive – and investors will look for cheaper alternatives. With valuations so low across the board, there are lots of attractive alternatives.
In addition, if (when) MindMed uplists to the NASDAQ, that will immediately encourage other psychedelics companies to make plans (and perhaps announcements) of their own intentions to seek a premier listing.
Also, once MindMed successfully uplists, this will be an additional inducement for investors to look at other Canadian-listed psychedelic stocks (who have secondary OTC listings). They will now have realistic hopes of these other stocks also obtaining the greater access to capital and liquidity of a NASDAQ listing.
The Compass Pathways IPO bounce
It’s not mere wishful thinking to expect an atai IPO or MindMed uplisting to be the catalyst for a major new rally in these oversold stocks. We’ve already seen precisely this scenario when Compass Pathways made its own IPO debut.
Share prices were very depressed. Trading volumes were extremely low. Déjà vu.
The Compass IPO immediately kick-started these stocks, with some of them doubling within the first week of CMPS commencing trading.
Both MindMed and Numinus Wellness (CAN:NUMI / US:LKYSF) generated at least ten-bagger returns for investors from the time of the Compass IPO to their 2020 high.
Before the Compass IPO, there were few signs of life in the sector. After the IPO, not only did retail investors drive up share prices, institutions developed a rabid appetite for this emerging industry.
What else is different between then and now?
- Companies are already cashed up
- Opportunities in the sector have multiplied
- More investors know about psychedelics due to media coverage
- Advanced R&D is closer to completion
Since the Compass IPO last September, over US$700 million in institutional capital has flooded into the private and public players in this industry. At their current burn rates, many companies are capitalized for several years of operations.
That means investors looking at these stocks today will have much less fears of dilution undermining the upside potential. Companies don’t need to go to capital markets for additional financing – until they are able to do so on favorable terms.
Originally, the Psychedelics Revolution was seen as ‘only’ an opportunity targeting the 1+ billion people afflicted by the Mental Health Crisis. However, the Revolution is rapidly branching into many other huge medical treatment markets.
After a brief lull, media coverage of the spectacular potential of psychedelic drugs to treat mental health disorders is now being ramped up.
In just the last week, diverse publications like Time Magazine, the LA Times, Vice Magazine and the Toronto Sun have all published enthusiastic articles on the potential of psychedelic medicine. This will go a long way in dispelling anti-drug phobias among investors – built up over decades of War on Drugs-era propaganda.
Meanwhile, some of this research is getting closer to emerging from the R&D pipeline. Compass Pathways expects to report results from its Phase IIb clinical trial for treatment-resistant depression by year end. MAPS’ Phase III trial for PTSD could be concluded this year.
Once the first of these next-generation drugs is licensed and approved, the potential of this industry goes from being speculative to proven. Dozens of multi-billion-dollar treatment markets beckon.
The atai-MindMed bounce
For reasons already explained, either the atai Life Sciences IPO or a MindMed uplisting to the NASDAQ could produce an even bigger rally in psychedelic stocks than we saw last year after the Compass Pathways IPO.
But what will be the impact if both these events occur within weeks – or even days – of each other? Think of the blast from a double-barreled shotgun.
Two new psychedelic stocks debuting on the NASDAQ within weeks/days of each other can be expected to draw a much greater flurry of media coverage along with the double-barreled influx of new investors.
Even more likely that we will see the momentum-chasers pile into these stocks (as we saw during the 2020 rally). And with one huge rally already in the bank in this sector, we could see many more of these momentum-chasers jumping on the psychedelics bandwagon this time around.
Investors reaped ten-baggers from the Compass Pathways IPO (though not from CMPS itself). What will we see when markets get really excited by this atai-MindMed shotgun blast?
No one knows for sure. One thing we do know for sure: the investors who got in before the CMPS IPO logged the biggest gains.
The atai IPO and MindMed uplisting are now looming on the horizon.
If the next rally in psychedelic stocks is anything like the last rally, it’s not an opportunity that you want to miss.
DISCLOSURE: The writer holds shares in MindMed Inc and Numinus Wellness.
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