Tuesday, May 11, 2021

The Psychedelic Revolution Is Coming; I just bought CMPS and MSOS in my personal account; Marijuana Legalization Will Be Good News for Pot Stocks; Excerpt on drug abuse from my book

By Whitney Tilson

1) This article on the front page of yesterday's New York Times, The Psychedelic Revolution Is Coming. Psychiatry May Never Be the Same, reinforces what I wrote in my December 9 e-mail.

Here's an excerpt from the article:

Dr. Doblin's quest to win mainstream acceptance of psychedelics took a significant leap forward on Monday when the journal Nature Medicine published the results of his lab's study on MDMA, the club drug popularly known as Ecstasy and Molly. The study, the first Phase 3 clinical trial conducted with psychedelic-assisted therapy, found that MDMA paired with counseling brought marked relief to patients with severe post-traumatic stress disorder.

The results, coming weeks after a New England Journal of Medicine study that highlighted the benefits of treating depression with psilocybin, the psychoactive ingredient in magic mushrooms, have excited scientists, psychotherapists and entrepreneurs in the rapidly expanding field of psychedelic medicine. They say it is only a matter of time before the Food and Drug Administration grants approval for psychoactive compounds to be used therapeutically – for MDMA as soon as 2023, followed by psilocybin a year or two later.

After decades of demonization and criminalization, psychedelic drugs are on the cusp of entering mainstream psychiatry, with profound implications for a field that in recent decades has seen few pharmacological advancements for the treatment of mental disorders and addiction. The need for new therapeutics has gained greater urgency amid a national epidemic of opioid abuse and suicides.

And here's an excerpt from my e-mail:

When I first heard about people taking psychedelic drugs earlier this year, I thought they'd lost their minds. It conjured up images of the 1960s, with hippies tripping out on LSD or magic mushrooms.

But as I did more research, I was surprised to learn from this 60 Minutes segment by Anderson Cooper that...

These powerful, mind-altering substances are now being studied seriously by scientists inside some of the country's foremost medical research centers. They're being used to treat depression, anxiety, and addiction.

The early results are impressive, as are the experiences of the studies' volunteers who go on a six-hour, sometimes terrifying, but often life-changing psychedelic journey deep into their own minds.

It's a fascinating and promising new area of research...

While it might take some time to develop, I can easily see how this sector, from an investment standpoint, might become white-hot – as cannabis did – so my team and I are looking for the best ways to invest in this theme in the public markets (it's not easy, as most companies doing research in this area are private).

2) I think there's going to be the mother of all bubbles among psychedelic stocks – and we might look back on the NYT article as the catalyst – so yesterday I bought a small position in COMPASS Pathways (CMPS) in the "mad money" sliver of my personal account.

To learn more about this company, I recommend reading this report from last October by my friend Andrew Left of Citron Research: COMPASS Pathways (CMPS): The Platform Mental Health Company 50 Years in the Making. Excerpt:

CMPS is a biotech company that has received breakthrough therapy status from the FDA and is using a patented synthetic version of psilocybin (i.e., the active agent in "magic mushrooms") to target the treatment-resistant depression ("TRD") market of >100 million people who have tried two or more existing treatments without success.

Yes, the use of psilocybin to treat depression is the new idea 50 years in the making and COMPASS Pathways is the leader in regulated scientific use of this treatment.

Citron notes that it is important to recognize CMPS as a platform company that will expand psilocybin therapy into new indications beyond TRD, explore other compounds and therapies to address areas of unmet need, and create a new model for mental healthcare using digital technology to improve access to all.

The global TAM for medicinal psilocybin therapy is so large there is no reason why CMPS is not $100 immediately, which would make it only a $3.5 bil company.

3) Speaking of drugs, this Barron's cover story captures why I'm super-bullish on U.S. pot stocks (I don't like the Canadian ones) and recently bought the AdvisorShares Pure U.S. Cannabis Fund (MSOS) in my personal account: Marijuana Legalization Will Be Good News for Pot Stocks. How to Play the Sector. Excerpt:

Now, events are breaking in favor of the American operators. On April 19, the House of Representatives passed a bill by a 3-to-1 margin that would allow the pot industry to use the federally regulated banking system. Senate Democratic leaders support a matching bank bill. Meanwhile, COVID-19 has left state governments desperate for tax revenue.

New York, Virginia, and New Mexico recently joined the 13 states that have allowed recreational sales to adults. Over time, recreational sales will probably come to the 20 states that now allow sale by prescription. That could spur the remaining state holdouts to fall in line, if federal legalization doesn't happen first. So, sales can't help but grow.

Sales at the U.S. cannabis chains are already doubling and tripling. The companies are profitable. At Trulieve, operating cash-flow margins were 46% in December's quarter. The multistate chains achieve these impressive results while still weighed down by federal laws that impose tax penalties, prevent interstate shipment, and keep exchange-traded funds and mutual funds from buying their stocks. When these impediments fall away, profits should get even better.

4) I recognize that there's a fair bit of irony in the fact that I'm talking about psychedelics and cannabis when I've never used an illicit drug in my life, for reasons I discuss in my new book, The Art of Playing Defense: How to Get Ahead By Not Falling Behind, which is officially launching one week from today. Here's the relevant excerpt:

Drug Abuse

I've never used drugs, not even once. The way I look at it, there are only two outcomes, and both are bad: either I will like it or I won't. If it feels great, then I'll probably want to do more of it and end up on the slippery slope to abuse and addiction. And if it makes me sick and miserable, why would I do it?

Even marijuana, which is now legal in many states, is very risky – a fact that a huge industry tries to hide. In fact, as journalist Alex Berenson argues in his powerful book, Tell Your Children: The Truth About Marijuana, Mental Illness, and Violence, if you discard the junk science, there's substantial evidence that marijuana is addictive, can lead some users to become terribly violent, and is linked to the development of schizophrenia, especially among young users. What sane person would want to play around with any of these risks?

As for harder drugs, more than 70,000 Americans died from overdoses in 2019 – it's now the leading cause of death for people under 50. This chart shows the horrifying increase, driven by opioids:

I don't know what more I can say, other than to stay far, far away from drugs...

Best regards,