Chris Wood at RiskHedge is selling one of his higher-end newsletters, Project 5X ($2,497 for the first year, 30-day refund period), by teasing that he will reveal “My #1 Play of the Psychedelic Medicine Revolution”… largely because, like many pundits, he believes that psychedelic drugs might follow the path worn by marijuana over the past few decades… beginning evidence of medical benefit, decriminalization and legalization for medical use as consumer demand and evidence pile up, then mainstream use by medical professionals and full legalization as recreational drugs.

Will that happen? I don’t know, but it’s definitely a theme among investors these days — one thing investors love to do is look for the “next” — what’s the “next Apple” or the “next GE” or the “next China” … or, in this case, what’s the “next marijuana?” Maybe it’s the broad range of popular psychedelic drugs, from MDMA to LSD to psilocybin, or maybe it’s one of those.

Here’s a little taste of the ad:

“The Psychedelic Medicine Revolution

“When you think about psychedelic compounds like LSD, ecstasy (MDMA), and magic mushrooms (psilocybin)…

“You might picture hippies running around Woodstock.

“But the latest science is showing psychedelic compounds are likely some of the most effective medicines in the history of mankind.

“World-renowned Johns Hopkins University recently launched the Center for Psychedelic and Consciousness Research to study these compounds…

“And so far, the results are stunning.

“They found psilocybin to be 4X more effective at curing depression than commonly prescribed medications.

“One study published in the prestigious journal, Nature Medicine, found 67% of participants who received just three MDMA-assisted therapy sessions were effectively cured of PTSD.”

That evidence has been building for a while, particularly in the ability of various psychedelic drugs, usually in very small doses and/or as part of psychotherapy sessions, to help with depression, PTSD and addiction disorders… much like the evidence built for a while about the value of marijuana compounds like THC and CBD in treating addiction or epilepsy, or even just pain for cancer patients. And I guess it’s also still true that there’s a social stigma attached to psychedelic drugs, just as there still is with marijuana in a lot of communities, and the erosion of those stigmas can also have a big impact, sometimes, on the investor enthusiasm for a particular sector (we’ve sure seen that with marijuana and online sports gambling).

Will that lead to a wild move in the stock market for the companies who are trying to research, develop and commercialize psychedelics-based drugs, or perhaps even to distribute those drugs for self-medication or recreational use as legalization makes progress? Maybe. Certainly lots of folks are using the marijuana stock price speculation blueprint to look for the next wave, and those moves were dramatic during the previous booms in various pot stocks — especially the big penny stock pot boom of 2014, which created paper fortunes before evaporating very quickly, like most penny stock bubbles, but also the later mainstream drama when pot stocks got big and some huge moves were made in 2017-2019 or so, particularly among the big Canadian pot stocks (Tilray, Canopy Growth, etc.). Almost all of those stories have ended in tears for at least some people, the folks who bought during the market mania, but a lot of those companies have also survived and created a new generation of pretty big and perhaps sustainable marijuana companies.

If psilocybin and other psychedelics are going to become big legal markets, either therapeutically or recreationally, then we’re just in the very early days. There is only one state to have legalized psilocybin for therapeutic use (Oregon, in last year’s elections), and there are a handful of cities around the country that have decriminalized psilocybin… but, like marijuana, it’s still fully illegal at the federal level (and unlike marijuana, the average person has little to no exposure to psychedelics, so there isn’t that comfort level yet that has enabled lots of legalization campaigns to gain stream for marijuana over the past decade).

What does that mean in practice? It means there aren’t many psychedelics companies who are trying to build a retail “medical use” market for magic mushrooms (or LSD, or whatever), at least not among publicly traded companies, most of the companies involved in this space are taking the “regulated drug” path to building a business. At least for now, and probably for the foreseeable future (though my crystal ball is a little cloudy).

This is a little bit reminiscent of the story of GW Pharmaceuticals, which was often pitched, back in the wild penny stock days of 2013-2014 as well as later, in the 2017-2018 boom, as a key investment because of the legalization of marijuana. It worked out well, the stock ended up with solid returns for shareholders who bought into those teases when Jazz Pharmaceuticals bought them out a few months ago (for ~$220 a share), but it wasn’t really a marijuana legalization and “build your dispensary network and branded products” play, which is how most marijuana companies are building themselves these days — it was a pharmaceutical company with a marijuana-derived drug, Epidiolex, and they went through the same kinds of regulatory review and clinical trials as any other drug. And got bought out by another pharma company not because marijuana legalization was progressing, but because their drug, whose marijuana connection is not particularly highlighted by the company, was a hit in the marketplace and has been generating strong sales and prescription numbers.

Decriminalizing marijuana would have made GW’s work somewhat less onerous, I suppose, and the wave of state legalizations probably raised their profile, but GW Pharmaceuticals was never really in the business of selling marijuana, and their drug did not require any kind of legalization campaigns or regulatory changes to be prescribed in the US. If anything, legalization was more of a risk for them because it brought competition — people could choose to self-dose with marijuana or CBD in lots of different legal forms, as the medical and recreational markets grew and opened up nationwide, instead of using GW’s prescription formulations — maybe not as safe or controlled or predictable, but probably a lot cheaper, and appealing to some.

So that’s probably what we’re being pitched here — not really a mass-market psychedelic legalization stock, but a drug company trying to get its psychedelic medicine approved by going through clinical trials with the FDA. There are a handful of relatively small pharmaceutical companies who are trying to develop their own branded formulations and implementations of various psychedelics… in fact, there are now enough of them that we even have a few ETFs for psychedelics (Defiance Psychedelic (PSY), Horizons Psychedelic Stock (PSYK.NO) and AdvisorShares Psychedelics (PSIL)). But Wood says he’s found one that’s a “sleeper stock” and isn’t getting enough attention, so let’s see what he’s actually teasing.

Here are our hints:

“This is a brand-new recommendation I just sent to my current subscribers today.

“It’s a small, unknown $2 stock developing psychedelic-based medicines that will be tested in clinical trials…

“And then prescribed to patients for depression, addiction, and other mental health disorders.

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“This company has created a revolutionary form of psilocybin that absorbs directly into a patient’s blood stream for fast relief…

“Doesn’t cause any uncomfortable side effects…

“And can be administered in short, safe doses.

“Right now, this tiny company is trading at around $2 a share.”

OK, so that narrows it down — this could be one of two or three companies. Other clues?

“… it has a clinical trial on depressed patients providing important data this year…”

So what’s the stock? No 100% guarantee on this one, given the clues, but the Thinkolator has a high degree of certainty that our best match is Cybin (CYBN for the NYSE ticker that began trading last month, or CYBN.NO in Canada on the Neo).

Cybin is not the smallest publicly traded company trying to develop psilocybin-based drugs and treatment regimens for depression (that might be Core One Labs (COOL.CX, CLABF)), but it is still quite small at a market cap of about $350 million… and, yes, it is trading in New York as of their uplisting in early August, and that generally tends to give investors a little confidence.

What do they do? They break out the business into three pillars, Drug Discovery (creating new formulations based on psychedelic drugs); Drug Delivery and Formulation (inhalation and sublingual mechanisms for fast onset and dose control); and a Novel Treatment Regimen (integrating software support for patients in addition to drugs and monitoring, including neuroimaging), this is from their investor slide deck:

It all sounds very impressive. And they do have some clinical catalysts coming — the most imminent is, as Chris Wood teased, some news on their lead trial for their sublingual psilocybin formulation in major depressive disorder. This is a Phase 11 trial, and part A of it might generate news at pretty much any time, that’s where they’re trying to pinpoint a dosing regiment for their sublingual film and comparing it to psilocybin capsules, and then, once they’ve identified a dosing regimen, proceed with a randomized double blind placebo controlled safety and efficacy trial. The whole trial is slated to last a year and was announced in May, and we don’t really know anything about timing, but it could well be that there will be some news out by the end of this year — if only on the first phase of dosing. That trial is taking place in Jamaica, where psilocybin is legal and attracting a fair number of researchers (there are quite a few “psilocybin wellness” retreats in that country, too).

The things you would generally care about for a pharmaceutical company are here: They have a drug which shows promise for some big unmet needs, including depression, even if that promise is widely attributed to psilocybin that can be delivered in many different ways and maybe not unique to them; they have a unique formulation and patent protection, so there is some hope for being approved for an exclusive drug using their particular formulation someday; they have more than one drug in development, so not all of the company is riding on a single clinical trial; they are reasonably well funded thanks to their recent equity raises, with about $100 million in cash; and they have an interesting delivery strategy, with the integrated imaging and machine learning and followup work connected to the drugs.

Will it work? That’s an impossible question to answer at this point, but it might. All I can tell you is that this is likely the “secret” stock Wood is touting, and there are rational reasons to consider it if you like investing in biotech and drug development companies. I don’t often get involved in investing in clinical-stage drug development, largely just because the financial prospects are never very clear to me and I can usually be sure, in the biotech space, that I’m buying shares from someone who understand the science better than I do, so if I were to place a bet on psychedelics having another big run as investor darlings I’d probably just go with an ETF… but I know lots of investors like to dig deep on smaller biotechs, and this one at least seems to be worth the research time.

If you’ve already been bit by the psychedelic investing bug and have your own favorites or ideas to share, please feel free to do so with a comment below — we’ve seen some higher-profile newsletters recommend stocks like Compass Pathways (CMPS), Atai Life Sciences (ATAI) and Mind Med (MNMD) over the past year or so as those heated up as “story stocks”, and there are a lot of clinical trials underway at a lot of different companies, mostly in Phase 1 or 2, in various indications for drugs based on psilocybin, LSD, ketamine, DMT, Ibogaine and MDMA. I have no idea how any of them will go, but I do hope they continue to show great hope for those who suffer from depression and addiction. And compared to those larger companies (all above $1 billion), I guess Cybin is not all that well known, and I think it might be the smallest “psychedelic” developer to have a Phase II trial. I can’t be sure of that, but I didn’t find any others along the way that were smaller and further along in development.

That’s about as much as I know on this topic… so I’ll pass it back to you, dear readers, the friendly little comment box awaits below…