And you know Rob Borrow will get Breakthrough therapy designation on this. He has already done it. And Mindmed shareholders will be having yacht week even sooner than expected.
Huge MindMed DD From Stansberry Research & 18-MC J&J Connection
In this month's issue of *Cannabis Capitalist*, *we're* going to be the "suckers"... albeit educated ones.
It may lead to big gains and help us avoid losses by recognizing a pattern that shows up across all disruptive technologies and trends.
Last month, we showed you a list of companies that we're watching closely in the emerging medical sector of psychedelic therapies. This new trend has real potential to disrupt how we treat and potentially cure mental illness.
Early research – both anecdotal and peer-reviewed – is showing tremendous promise. But this is just getting started. Like medical cannabis, we believe this new therapy will follow a similar pattern for information, medical use, and investment. And this month, we're recommending **MindMed (Nasdaq: MNMD)** from that watch list. But first, let's see why this pattern is so important when it comes to investing in disruptive markets...
#### The 'Sucker's Rally' That Follows Innovation
Cannabis investors made great returns in the early days of the sector. Stocks soared to incredible valuations, but later came crashing back down. Then, they repeated the pattern. Now, there are a number of well-financed and managed cannabis businesses in the U.S. that are on their way to much higher valuations. They're driven by fundamentals rather than just hype. You can see it in our portfolio, as we have five open positions (out of 13) up more than 100%.
What drives this early rally followed by a crash (or two) and then on to big, legitimate gains? There is a boom-and-bust cycle in almost every emerging industry that has the potential to disrupt how things are done.
We call the first run-up the "sucker's rally." It occurs swiftly as mainstream and social media begin to cover the news about a new, innovative industry. Investors begin to pile into any stocks that resemble the emerging sector.
The fundamentals of the businesses don't matter. The sucker's rally is a speculative frenzy... and it can't last. *But it's a great time to make money, provided you prepare for the next phase...*
The rally is followed by a tremendous crash. This is when cooler heads prevail. Investors begin to do fundamental analysis. They put pen to paper and often conclude that the stocks are tremendously overvalued and won't offer revenue or profit for years. And that's the time to take a step back from the sector for a bit.
My friend and former hedge-fund manager Whitney Tilson famously called the top of the sucker's rally in cannabis. He highlighted Tilray shares at $300 in September 2018. A year later, the shares had declined 90% and ultimately fell by a stunning 99%.
As the companies in the bunch with real fundamentals make progress, the cycle continues. The sector reaches another tipping point, but at much lower valuations. Investors begin to get excited again. This time, their enthusiasm is fueled by fundamentals. This is the start of the next phase... the "mega boom." It often lasts for years, or even decades, as the underlying innovations take root, evolve, and become the next big thing. This is the time to own these stocks for the long term.
We believe a mega-boom is happening across the spectrum of health care. You can see it in things ranging from cancer-drug development to digital health care that was accelerated by the pandemic. And we will eventually see it in psychedelic-drug therapies offering radical solutions in mental health...
Global research and advisory firm Gartner Research calls this pattern a "hype cycle." You can see it play out in a few different sectors that are just a small sample of the many times it has been studied and documented...
**Green-Energy Boom**
About 15 years ago, the pro-environmental movement was really hitting its stride. The green-energy boom was off to the races.
Billionaire T. Boone Pickens made a fortune in the Texas oil business. However, much of his net worth came in the early-to-mid 2000s – in green energy. He pivoted to the green-energy wave through wind-energy investments in a big way, determined to end U.S. dependence on the Middle East for oil. His interest in the idea got investors really excited.
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But Pickens had a problem. Wind-energy technology was nowhere near mature enough to move the needle. Environmentalists worried that big windmills could actually disrupt the environment. There were holes in the story – technological, financial, and cultural. Solar energy was the same story.
But these holes did not prevent a massive rally in green-energy stocks. In the chart above, the S&P Global Clean Energy Index illustrates the sucker's rally followed by a giant crash. Eventually, industrial footing and traction took hold. The index has more than tripled off the bottom and is likely beginning a long-term increase in value.
**Cryptocurrency Craze**
Created after the financial-market meltdown in 2008 to 2009, bitcoin has followed a similar path. It was worth less than a penny back then, and jumped to $0.08 in 2010.
But the real rally came in 2017 as cryptos gained attention and perceived relevance. Elon Musk and other influencers began to speak about the crypto publicly. Even famed investment manager Bill Miller put 30% of his fund in bitcoin.
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The coin went from essentially zero to worth $20,000 before ending the following year down about 80%. However, bitcoin had proven itself to be part of the global financial fabric at that point.
In the coming years it bounced around between $5,000 and $10,000. Then in 2021, the value soared to $60,000 per coin. This new investment instrument is now part of our financial world.
Our own crypto expert Eric Wade writes *Crypto Capital*. Given his views, cryptos may still be early into their mega-boom.
**The Dot-Com Boom**
Do you remember back in the early days of the Internet? It was going to change everything. And investors all wanted in on the action.
Capital flowed into this new way of life. Companies were created and went public overnight. Businessmen like Mark Cuban became billionaires. And then it all came crashing down...
But the early promise of the Internet has played out. It *has* changed almost every aspect of our lives. The mega-boom began about eight years after the crash. The survivors flourished – real companies with revenue, earnings, and evolved innovation.
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The tech-heavy Nasdaq is now almost three times the value of the sucker's-rally peak.
**And of Course... Cannabis**
The subject matter of this investment newsletter has followed the same pattern. It has had a couple sucker's rallies and one big blowup. Now, as the sector has had room to mature, it's in the early stages of a mega-boom.
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Related to medical cannabis is the promising new therapeutic use of psychedelic drugs. Below is an index of 58 publicly traded stocks vying for position in this disruptive emerging market.
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While some peaks have occurred, we do not believe a true sucker's rally has happened... and it may be around the corner.
Psychedelics are about to begin the hype cycle. As we said last month, the successful use of psychedelic drugs as an alternative to failed traditional therapies is going mainstream. Research is being published from places like Johns Hopkins University School of Medicine and the *New England Journal of Medicine*.
The massive global market in mental illness will cost $16 trillion by 2030. In the U.S. alone, the measure of the direct and indirect costs for mental illness and substance abuse (which often go hand in hand) adds up to about $713 billion ($113 billion for mental health and $600 billion for substance abuse).
We want to own a stock with real potential, lots of cash, supportive investors, and a ticker traded on a U.S. exchange as the hype cycle begins. And that brings us back to MindMed. This is a little company with big ambitions. A handful of people we've talked to believe this could be the bitcoin of psychedelics. And we want to be on board for the ride up once investors start piling into the sector.
Keep in mind, we believe the sucker's rally is coming... which means this is a speculative, shorter-term trade. These stocks will be very volatile. In other words... don't put your rent money into this investment.
#### A Strong Candidate to Win Out in the Speculative Frenzy
MindMed is a $1.1 billion company focused on mental-health disorders, including anxiety, depression, and substance-use disorder. Its studies involve LSD, MDMA, psilocybin (the hallucinogenic compound in "magic mushrooms"), and other psychedelic compounds.
The company is led by a group of innovative researchers with decades of drug-development experience. It is partnered with New York University's Langone Medical Center, University Hospital Basel in Switzerland, and Maastricht University in the Netherlands, greatly expanding the clinical reach of the organization.
We believe a number of near-term catalysts may move the shares higher over the next 12 months and create a speculative frenzy in its shares (as well as others in the psychedelic-therapy space).
We like MindMed for four reasons:
* The company is well-financed with plenty of cash. * Current research projects are showing promise, leading to catalysts that may increase demand for the shares. * Shares trade on the Nasdaq, opening it up to a broad investor base. * An interesting addition to the company's scientific advisory board directly links the company to Big Pharma.
#### Plenty of Runway
In mid-May, the company reported its first-quarter financial results for 2021.
In addition to a lot going on clinically, the company reported $160 million in cash. Two recent financings supported the cash levels – a vote of confidence from investors. The first was a formal financing that added $73 million and was upsized from original levels. The second was a $15 million private placement.
Investors are clearly interested in this company... Since 2019, the company has raised $204 million from seven different financing rounds.
The company looks to be burning about $14 million per quarter in cash. However, that is likely to increase with research activities.
#### Lucy, Flow, and Layla Could Spark a Rally
MindMed has a lot going on. However, we would highlight three research efforts in the pipeline with promise. Each has its own name, which is common in drug development.
**First is Project Lucy**. MindMed acquired this clinical trial from University Hospital Basel in Switzerland. This project uses LSD to treat anxiety disorders and is the most advanced of these projects from a clinical-trial timeline perspective.
Patients will be given a single dose of LSD in a protected, safe setting while a therapist guides the patient through the experience. This is a common approach being studied in many places.
Two doctors from University Hospital Basel with experience in psychedelic-drug research run the trial and are partnered with the company. This deal provides MindMed with critical expertise.
An Investigational New Drug ("IND") application – which MindMed expects to file in the third quarter of 2021 – is being prepared for the Food and Drug Administration. An IND grants a pharmaceutical company permission to begin human trials. It also permits the substance under study to be transported across state lines. This is important, as LSD is an illegal substance per the U.S. federal government and many other countries.
Approximately 200 patients across 20 U.S. sites will be involved in the study, which is expected to commence in early 2022.
The anxiety-medication market is huge – with $4.7 billion spent annually. There will likely be some fanfare around this milestone that could move the stock higher.
**Project Flow** is looking at the concept of micro-dosing of LSD and the beneficial effects that may result. Anecdotally, LSD and psilocybin have been shown to lessen anxiety and increase focus. Both are being researched globally for mental-health issues. This study is similar to Lucy, but the dosing is different.
Micro-dosing means using very small amounts of the drug under study. The amounts used will not cause any hallucinogenic effects for the patient. Patients will be given 20 micrograms of LSD every three days for six weeks. They will then be followed for 18 to 24 months.
As an aside, the term "micro-dosing" is somewhat nonsensical. When you take two aspirin for a headache, you are essentially micro-dosing aspirin and not taking the whole bottle. Studies are simply experimenting with different dose levels.
This project will begin Phase II during the third quarter of 2021. It is being conducted at two sites – the Netherlands and Basel, Switzerland. This is essentially a proof-of-concept study, but could be another catalyst that sparks investor interest.
**Project Layla** is looking at opioid withdrawal and substance-use disorder. The goal is to mitigate withdrawal symptoms so that patients do not relapse to addiction.
MindMed is hoping to do this by stabilizing dopamine levels in the brains of opioid addicts using a synthetic molecule derived from ibogaine – a naturally occurring psychoactive substance found in the iboga plant in the African rainforests. In high doses, pure ibogaine can cause heart failure. However, the company has altered its molecule to maintain all of the perceived positive attributes of the substance without the detrimental effects.
The opioid epidemic in the U.S. and abroad is a major public-health issue. Overdoses from opioid addiction even caused life expectancy to decrease in the U.S. over the past years. Globally, $5.8 billion is spent on anti-addiction medicines.
This trial is being conducted in Australia and finishing Phase I this year. No excess toxicity has been observed, and the study is expected to move into Phase II in early 2022. An estimated timeline suggests observations will be available over the next two years and conclude in 2024.
In addition to these trials, the company – through its academic partnerships – is working on a number of other research projects. It is licensed for DMT, MDMA, LSD, and psilocybin. This work is expected to source the next round of commercially viable research.
Albert is what MindMed is calling its digital health care effort. This is particularly interesting to us.
Digital health care has been fully accepted and legitimized by the global COVID-19 pandemic. In the past 10 years, more than $40 billion has been invested in startups using digital solutions to address all kinds of health care needs.
MindMed has created this division to complement its clinical research. Specifically, the user-friendly interface will help with connecting patients to psychiatric clinicians, managing clinical trial data, remote patient monitoring, and medication adherence regimens.
Moreover, recent software-driven partnerships have been developed with the National Institutes of Health, Merck, Novartis, and others. These may lead to near-term revenue opportunities.
#### MindMed Trades on a U.S. Exchange
On April 21, 2021, MindMed began trading on the Nasdaq.
As we've discussed with our cannabis stock picks, getting listed on a major U.S. exchange is a massive catalyst. For example, **GrowGeneration (Nasdaq: GRWG)** was trading around $6 a share when we recommended it. Its listing on a major exchange opened it up to a wide audience of investors. And as the legal cannabis market in the U.S. exploded, so did GrowGeneration. Since inception, shares are up eightfold.
Because of its U.S. listing, we believe MindMed will be a go-to stock for investors looking for exposure to the psychedelic-drug market. This will give the full breadth of the market the opportunity to trade in the stock and push it higher.
An added benefit is analyst coverage. Since making the move to the Nasdaq, MindMed management suggested to us that analysts have started to work on initiation reports – the first report written on a company by analysts. This tells the investment world that this analyst will now be following the stock on a regular basis. It is almost a ceremonial process with Wall Street research. We expect more analysts to be saying good things about this stock soon. That could also be a near-term positive catalyst.
#### A Trade Based on Near-Term Catalysts
There is not much to talk about in terms of revenue and earnings. If that sounds crazy – it is.
I've spent my career doing fundamental analysis and picking stocks on that basis. Market psychology, chart patterns, and near-term catalysts play a part, but they are secondary factors. Ultimately, revenue and cash flow will win out.
However, we must also recognize the ability to make big returns based on the secondary items mentioned above. These things drive big run-ups in stocks for disruptive innovation. This is where we are in psychedelics right now. The fundamentals will build in coming years. I'm sure of it.
For now, we are looking for company characteristics that will drive the sucker's rally in psychedelic stocks and pick a winner. Cash on the balance sheet and a history of supportive investors is a critical factor. We have both with MindMed.
#### What Could Go Wrong?
Risks abound with this recommendation. By now, we hope you've gotten the message loud and clear. However, here are four fears that might cause us to lose money near term.
**First – did the sucker's rally already happen in this stock?**
In September 2020, the shares traded around $0.30 to $0.45 per share. That month, two catalysts occurred: In an "aptly timed" move, Canaccord Genuity initiated coverage of the stocks with a "Speculative Buy" rating. A week later, the company announced it would seek listing on the Nasdaq. From that point, shares have traded as high as $4.69. This is more than 10 times the price less than a year ago.
We are OK with this run-up, as it's early and looks to be company specific. Shares are off about 29% from those levels. This run-up is missing key parts of a sucker's rally – namely, accelerating coverage of psychedelics in the news. That has only just begun.
**Second – near-term catalysts could prove to be negative**.
Milestones from the three projects we discussed above may not meet their goals. That could cause us to lose a lot on this stock. It would be like a biotech company releasing bad news about a drug in development.
**Third – there are few fundamentals to fall back on**.
As mentioned above, revenue and earnings are not part of the thesis here. We believe investor frenzy will kick off the hype cycle and drive shares to soar. That said, we are keeping a close eye on cash levels and expected burn rates.
**Fourth – the CEO just resigned**.
On June 9, MindMed announced the departure of its CEO and founder, JR Rahn. Taking his place will be Chief Development Officer Robert Barrow.
Rahn founded the company and was successful in achieving a number of early-stage milestones. As the company matures and research moves into later-stage trials, it needs new expertise. In the meantime, Barrow is an accomplished pharmaceutical executive with over a decade of experience.
While management change in the C-suite can signal trouble, it is also a natural progression for early-stage companies. That is what this appears to be. Moreover, this change can also be seen as positive. The company, its founder, and its board proactively recognize the need to change leadership. That is required to move the company forward.
#### Despite the Risks, Let's Own Some MindMed
We believe a drug-development revolution is upon us with psychedelic drugs. The broad legalization of cannabis is supporting the move. And the medical benefits of psychedelics may even outstrip cannabis.
Don't get me wrong, medical cannabis will see many breakthroughs. However, the specific use targeting mental health – and positive results realized by this potential new class of drugs – is astounding. As more peer-reviewed, randomized, double-blind clinical trials show results, the sector will continue to gain publicity and attention.
Another part driving a rally in these stocks could be M&A from traditional biotech and Big Pharma competitors. For example, ketamine-derived Spravato is already out there for treatment-resistant depression. It is owned by the Janssen Pharmaceutical Companies of Johnson & Johnson (JNJ).
Others are likely watching the psychedelics trend very closely.
There's also another very interesting datapoint supporting this stock: Dr. Peter Bergethon has joined the company's Scientific Advisory Board.
This is noteworthy for two reasons.
First, he is an expert in neurology, digital medicine, and central-nervous-system drug development. His input will be invaluable to the company.
Second, his day job is with $57 billion biotech company Biogen. Bergethon is the vice president and head of Digital and Quantitative Medicine. Biogen has been working hard on therapies for Alzheimer's disease, among others. Bergethon could be a direct connection to Biogen as a strategic partnership for MindMed. This might include specific projects, research, or a buyout.
All of this will eventually spark a "sucker's rally" in this emerging part of the health care sector. And we want to be on board when that happens.
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18-MC Trial - Connecting the Dots to J&J - Updated & Revised
Rob Barrow... he replaced the contacts below who were originally listed on the Trial Data when this PR dropped on Feb. 2, 2021... which makes sense since he is the Business Development Officer:
Both of these folks are tied to Johnson & Johnson via Janssen... I don't think that is a coincidence.
They are working with Linear Clinical Research Ltd in Australia / Perth. According to the website:
Australian (TGA) clinical trial start-ups are typically 4-6 months faster than US (FDA) trials. Better still, they’re much cheaper – often a third of the cost and exceptional quality.
No IND required
Fast-tracked approvals
Generous R&D refunds
Excellent health system Access to patient databases
Data accepted by FDA, EMA, CFDA & PDMA
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Looks like to me they will fast track in Australia - then partner with J&J if successful.
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