Are Psychedelic Stocks a Good Investment? MindMed Goes Through Ups and Downs, Leaving Investors Unsure

Last Updated on May 31, 2021

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Are psychedelic stocks a smart buy? Depends on who you ask.

The second-ever psychedelic stock went public on Nasdaq Tuesday. Though the road was bumpy at first, many believe that MindMed and its unconventional treatments will pave the way for large gains. The biotech company was previously only trading on the Canadian NEO Exchange – a lesser-known exchange – but MindMed is now capitalizing on the excitement building around psychedelics.

Psychedelic therapies are showing major promise in lab studies, LSD, MDMA, and Psilocybin are still taboo, resulting in a fluttering stock the day MindMed went public on the Nasdaq. The stock dropped 30 percent, proving that the road is not yet paved for the biotech company.

Still, MindMed, trading under MNMD, is planning to bring psychedelic treatments to market as part of a multi-billion dollar industry. The company is sponsoring several studies and trials using hallucinogens and other “trip-inducing” drugs like LSD, MDMA, and Psilocybin, and many have come back with promising results. The trials are observing the drugs’ utility in treating addiction, ADHD, depression, anxiety, and PTSD.

The Investor Deck reported the industry stats for global drug sales currently treating anxiety, ADHD, depression, and addiction, and each maintains sales from $4.7 billion to $9.5 billion a year. MindMed is seeing dollar signs, believing its alternative medications and treatments will take a slice of that pie.

MindMed co-founder and co-CEO JR Rahn told Forbes that he believes the company is still “in early innings here,” however listing on Nasdaq is a huge step toward success. “Three is a trend,” he explained, “this is not just a one-off thing anymore – this is going to stay and there are clearly large problems we’re solving and investors are willing to allocate capital.”

Perhaps after trials revealed promising results investors are more keen to open their wallets, but MindMed previously found it difficult to raise funds. Rahn recalled that “[venture capitalists] had blinders on when they saw those three letters: LSD. We got laughed out of most rooms. Where we found patient capital was up in Toronto.”

MindMed was then listed on the Canadian NEO Exchange, where it stays active despite also listing on the much larger Nasdaq. MNMD is the second psychedelic stock to hit the exchange. The first, Compass Pathways, went public in 2020 and maintains a $1.33 billion market cap.

MindMed continues to flutter three days after its listing, still considered a penny stock by some. Money Morning calls MindMed a “must-buy” at under $5 a share, and as of April 30, it’s trading just above $4. The price may soon rocket depending on investor-perception of the psychedelic treatments, and since its early, volatility is inevitable.

Traders might be worried about recent Reddit users who bump up stock to let it crash back down again days later, the way it did to GME to wreck the wallets of hedge funds who had shorted the stock. The Hustler reported that r/WallStreetBets are fixated on MindMed, with several front-page posts on the subject. MNMD could be the next GME, which can either be very good for early investors or a mess for traders and the biotech company.

The biggest thing for MindMed and its stock will be the results of clinical trials. Since the treatments use Schedule 1 drugs, the company and investors need to worry about the FDA along with the DEA, which could complicate the approval of MindMed’s products.