6 Best Psychedelic Stocks to Buy
It seems like the battle for legalization never ends for a handful of industries. In particular, the cannabis industry, gambling and gig economy are constantly involved in lawsuits. Joining these three, the psychedelics industry has also entered the fight for legalization. That’s why I’ve tracked down the six best psychedelic stocks to buy.
If you’re not sure, psychedelics are drugs. If you’ve never done them, you probably recognize them by names like Psilocybin, MDMA, DMT, LSD and ketamine. And if you have done them, you probably recognize them by names like shrooms, clarity, Dimitri, acid and special k.
Just like marijuana a few years previously, these drugs are starting to be evaluated by the medical community to determine if they could be beneficial in various mental health treatments.
Psilocybin, in particular, won a huge battle in 2020 when Oregon became the first state to legalize the drug for medical use. A few cities followed Oregon’s lead and decided to decriminalize the use of the drug. These cities include Denver, Washington D.C. and the California cities Oakland and Santa Cruz.
The drug also received a big win from the Food & Drug Administration (FDA), which recently designated psilocybin therapy as a “breakthrough therapy.” This could speed up the process with which psilocybin could pass through clinical trials and receive full approval for medical use.
Basically, the conversation around legalizing psychedelics is just starting. As you might imagine, an industry that’s only legal in one state is not going to have many choices when it comes to investing. According to Psilocybin Alpha, there are only 31 total psychedelic companies that are publicly traded. But most of these companies are listed on Canadian exchanges.
With that said, this might be a great time to start buying psychedelic stocks. The industry has so much potential to grow and most of the major Wall Street banks have not given these psychedelic stocks any attention yet.
Now, it’s time to take a look at the six best psychedelic stocks to buy.
Psychedelic Stocks to Buy
NOTE: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions
Mind Medicine (Nasdaq: MNMD)
Since psychedelics are barely even legal, it’s hard to assign a “leader” in the industry. However, if there was, it would probably be Mind Medicine (MindMed). I say this because it was the second psychedelic stock to be listed on a major U.S. exchange, after U.K.-based Compass Pathways. Being listed on a major exchange, as opposed to over-the-counter (OTC) is a big deal. This is because there are higher requirements to get your stock listed on a major exchange.
MindMed has also received backing from high-profile investors. This includes Shark Tank’s Kevin O’Leary and Bruce Linton, the former CEO of Canopy Growth.
MindMed’s focus is using psilocybin to improve mental health. Most of its treatments have reached the fourth level of clinical trials out of seven total levels. The company also recently purchased the startup HealthMode to speed up the process of developing psychedelic drugs.
Since it has been public for such a short time, there is very little to look at financially. Additionally, due to the nature of its business, it is not going to be hugely profitable until one of their treatments receives approval. However, it has filed 45 different patents for its treatments and has an extensive outline of its business plan for investors.
One thing to note is that this psychedelic stock has already gained traction on the Reddit page Wall Street Bets. That forum was responsible for sending GameStop’s price skyrocketing. Posts about the company have received hundreds of positive comments. This support could have a positive effect on the stock in the future.
Atai Life Sciences (Nasdaq: ATAI)
Atai Life Sciences is one of the few other psychedelic stocks that trades on a major U.S. exchange. Founded in 2018, it is a clinical-stage biopharmaceutical company that wants to transform the treatment of mental health disorders. It went public in 2021 and raised $258.8 million from the sale of stock that it can use to fund its research.
In total, it has eleven programs that are going through various phases of the clinical trial process. One last thing to note is that this psychedelic stock has received backing from the legendary venture capitalist Peter Thiel. He is well known for making early investments in Lyft, Yelp, Facebook and Palantir.
Cybin (NYSE: CYBN)
It’s in the process of developing a pipeline of novel psychedelic molecules for the treatment of diverse mental health indications. Just like most of the companies listed above, its focus is also psilocybin.
One of its main advantages is its drug delivery systems. First, it has developed a sublingual film that sits and dissolves on the patient’s tongue. By bypassing the liver, the drug enters the bloodstream more quickly and lasts for a shorter time. This allows Cybin to use less of the drug to achieve the same effect in patients. It is also developing an inhaler system to deliver the drug, which has already received regulatory approval.
In total, it has four programs going through clinical trials. It also has 14 patents covering novel psychedelic compounds, delivery mechanisms, supportive treatment platforms and drug discovery.
Johnson & Johnson (NYSE: JNJ)
One company that you might not even consider as a psychedelic stock to buy is Johnson & Johnson. It’s the world’s largest and most broadly-based healthcare company that employs over 130,000 people. However, it’s also the producer of the esketamine product Spravato.
Esketamine is a general anesthetic and is used for similar indications as ketamine. However, esketamine does not interact with the user’s sigma receptors. Due to this, the FDA approved the drug in August 2020 to treat depression and suicidal behavior. This technically makes J&J the only company that has a psychedelic product on the market.
Keep in mind that J&J reported almost $94 billion in revenue in 2021, so one drug is not likely to have a huge impact on their bottom line (or stock price). However, this could be a sign that J&J is interested in getting into the psychedelics space if these drugs continue to be legalized.
Johnson & Johnson’s stock is up close to 32% over the past five years. It also continues to pay shareholders a nice dividend that sits around a 2.5% yield. Which is a nice perk for investors looking for passive income opportunities.
Compass Pathways (Nasdaq: CMPS)
United Kingdom-based Compass Pathways was the first psychedelic stock to go public on a major U.S. exchange and was listed at $17 in September 2020. Its main focus is creating synthetic psilocybin, which would be used to treat mental illness.
It has a slight head start over other psychedelic stocks because its main drug, COMP360, already received “breakthrough therapy” status from the FDA. This will enhance the speed at which it can conduct and navigate the clinical trials process.
Buying Psychedelic Stocks with Defiance ETF (NYSE: PSY)
As many of you probably know, selecting just one psychedelic stock to invest in can be both difficult and risky. This is especially true for such a young industry like the psychedelics industry.
For example, you could predict that the future of psychedelics is incredibly bright and be dead right in your hypothesis. However, if you end up investing in the one company that never receives FDA approval then you’ll likely have nothing to show for your correct prediction.
To avoid this, consider investing in an exchange-traded fund (ETF), which tracks the prices of many different stocks.
One of the best psychedelic ETFs to consider buying is the Defiance Next Gen Altered Experience ETF. This ETF was launched in the Summer of 2020. It tracks over 20 different psychedelic stocks, including many of the ones listed above. By buying shares in this ETF, you can cash in on the growth of the entire industry without the pressure of choosing just one psychedelic stock.
For the record, its five biggest holdings in order are Aurora Cannabis, Cronos Group, Cybin, Compass Pathways and Charlottes Web Holdings.
I hope that you’ve found this list of the six best psychedelic stocks to buy valuable! As usual, all investment decisions should be based on your own due diligence and risk tolerance.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.