The launch of analyst coverage of psychedelics is a sign of how big the industry could become and why it is worth watching more closely now.
Strategic advisory firm Viridian Capital Advisors jumped into the psychedelics game by launching full coverage and analysis of the industry that essentially follows their cannabis tracking format.
Viridian’s addition of psychedelics coverage is just another sign of how big the industry is expected to become and why it is worth watching more closely now.
According to Fairfield Market Research, the global psychedelic drugs market will be worth $6.3 billion by 2026. That’s nearly double the estimate of $3.2 billion in 2021, registering an impressive CAGR of 14.5% for the period.
“While there are significant commonalities, we acknowledge that the psychedelics industry is a different beast than U.S. cannabis where to date we have primarily focused our efforts,” the launch notice from Viridian stated.
The firm plans to highlight operators and key investment themes in psychedelics and track psychedelics deals as they have since they began tracking cannabis deals in June 2014.
5 Key Takeaways
Viridian wasted no time in providing insight about where the industry is headed, including these key takeaways from its psychedelics initiation report:
- As with stocks in the cannabis space, disruption will lead to outsized returns for investors.
- Companies in the psychedelics industry raised more than $521 million in the past 18 months, with more than $50 million raised since the start of 2022 despite significant headwinds for investors. This includes disappointing stock returns and a current risk-off sentiment, meaning risk is perceived as too high in the segment.
- Beyond market cap, many companies have acquired sustainable funding to withstand the rigors of clinical trials and the development process.
- Many psychedelics companies are already well capitalized and don’t face the same constraints on funding that have plagued cannabis peers over the years. In fact, public psychedelics companies, on average, have nearly 40% of their market caps in cash, meaning that they have a significant runway to fund clinical trials and M&A despite the anticipated lack of contributions.
- Opportunities likely will arise for companies focused on supporting the industry without actually developing drugs. These ancillary services companies will include both psychedelics-touching companies, such as those that supply compounds to the wholesale market for drug manufacturers, as well as more traditional pick-and-shovel plays that support the industry.
In February 2021, Viridian’s president, Scott Greiper, told Yahoo Finance that he recognized the emerging science supporting the use of psychedelics from a medical and therapeutic perspective, which prompted the exploration of covering the industry.
However, the lack of a potential recreational market also makes the psychedelic industry somewhat less attractive to investors, he said.
Viridian’s initiation of psychedelics coverage is just the latest example of capital investors getting more interested in the psychedelics space.
Another is Brom Rector, founder and general partner of Empath Ventures and an investor advisor from the hedge fund world now running an early stage psychedelic venture fund.
“Psychedelics is one of those industries that, 18 months ago, if you told people that you were going to start a company in the psychedelic space, people would look at you like you were a crazy person, right?” Rector said during a podcast for Investor Connect, a podcast for investors and startups. “Like the industry basically didn’t exist. It was entirely underground. And now the amount of companies that have been started in the space doing like fully legal above ground work has exploded.”
Rector said that he thinks the psychedelics industry is in a shakeout phase where a lot of the weaker companies are going to fold.
“A lot of companies are going to go bankrupt. But what will be left are the strong companies. And this is where that, like serious, disciplined institutional money is going to come in and boost up the survivors and also invest in new, more high-quality companies that will be sort of the psychedelics industry 2.0,” he said.
Just finding something that is novel and actually a value to the end user is what an investor should look for.
“You know, the space is crowded. There are a lot of companies that are kind of pursuing very similar ideas, and I think it’s getting harder and harder for companies to really innovate in the space unless they have very deep science backgrounds. That’s one of the biggest challenges.”
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