A New Dawn: Canadian Exodus & Alternative Capital
With COMPASS Pathways' listing and early success on NASDAQ, a clear precedent is set. The premise of psychedelic medicine has been accepted by more extensive and more scrupulous investors and institutions.
The Canadian Exodus
Last Monday, three days after COMPASS’s IPO, MindMed promptly announced plans to up-list to the NASDAQ.
"Mind Medicine... is evaluating an expanded United States investor base through an up-listing on the NASDAQ Capital Market (“NASDAQ”)…
As part of this up-listing strategy in the United States, MindMed has submitted an application to list its subordinate voting shares on NASDAQ…
MindMed has appointed Canaccord Genuity Corp. (“Canaccord Genuity”) as financial advisor to assess the viability of a potential up-listing to NASDAQ and also help to evaluate M&A opportunities available to the company.”
Until COMPASS, all of the psychedelic companies that have IPO'd have done so in Canada's more speculative, less scrutinizing public markets.
The TSX Ventures, NEO, and CSE have simplified reporting requirements and reduced barriers to listing so they can serve more speculative ventures like crypto, mining, and cannabis companies.
This is necessary for such projects, but a downside to this capital environment is the preponderance of promotional/predatory plays.
For example, at one of the recent online summits, founders of one company included almost every possible buzzword in their pitch deck: Clinical Trials, Phase IIb (its always IIb), Compassionate Use, Section 56 Exemption, FDA Approval, Recreational Market, Naturally Sourced, GMP, Entourage Effect, synthetic, proprietary strains, patents, microdosing, Holland, Jamaica, Denver, Oakland.
The list went on.
The plan: do everything, everywhere.
In May, we noted in Canada, Hit the Brakes Eh?:
"What is emerging are two strains, if you will, of psychedelic companies:
Short-lived bad trips
long-duration opportunities for growth...
In marijuana, companies could spend money on grow operations and extraction technology and feel perfectly justified. The demand for psychedelic mushrooms does not compare to the daily consumption habit of weed, so mushroom farming seems an even faster race to the bottom. My sense is that the grassroots decriminalization efforts and the state-level initiatives like Oregon and Hawaii will not create the market that these entrants believe is coming on the one hand. On the other, the drug development gauntlet is too complex and long term.
Strip mall ketamine clinics it is.
The hope is that amidst this insanity there will be companies that are actually building something of value for society that will have access to capital and have the chance to grow something for the long term."
This, of course, is not to say that shady companies aren't traded on the NASDAQ; case in point is the electric/autonomous truck company, Nikola, who rode the Tesla slipstream to IPO only to self-immolate two months later.
But considering the long history of the psychedelic practice, the enthusiasm and promotion during the Counterculture years, and ensuing government clampdown—promotional companies capitalizing on this new, complex, and unique industry without creating real value are genuine reputational liabilities to the whole sector.
The speed with which MindMed announced plans to up-list is an indication that if developers want to be perceived as up to the task, with teams and products worthy of FDA approval, they have to list were other cutting edge biotech startups list.
This option will not be available for all companies—but it should be the goal of psychedelic drug developers—unless they want to get innovative with alternative funding models, a trend appears to be on the rise (see below).
Unlike a standard new drug, the constraints of psychedelic-based medicine demand unique infrastructure, personnel, and protocols—companies seeking to fill these niches will not have the same chance to capture institutional capital to the same extent as drug developers, but there is a trend in alternative investment structure gaining popularity.
Naturally sourced products, clinical infrastructure, therapist training, research infrastructure, and others might not be good candidates for a public listing so if they choose the speculative market route, they should know that it increasingly sends a specific message they will have to consider.
Couple this complexity with the competing ideals
'psychedelics as medicine to be delivered within the healthcare system' and
'psychedelics as sacred and to be protected from the pharma-insurance-industrial complex.'
and we have quite the spectacle.
A Good ol’ Heart-Measuring Contest
But this is where things get interesting and unique to the psychedelic space as it experiments with alternative investment vehicles.
If we compare the type of money interested in psychedelics to the type of money that was interested in crypto, cannabis, even renewable energy, there is a fundamental difference.
Blockchain/Crypto and cannabis are impactful for sure—chipping away at the War on Drugs and building a decentralized future are lofty pursuits. But this type of money still needs to get paid before all else. And even though Renewable Energy has a large and important mission, for an institution like Franklin Templeton to launch a Green Bond Fund—returns are still the Northernmost star.
However, unlike these sectors, investment in psychedelics has a more profound emotional overlap with philanthropic giving where many see the chance to write their legacy.
Psychedelics is a rich area for a super-wealthy person to build their legacy—disruptive, cool, saves lives—many see it as the highest form of Heart-Centered philanthropy.
Tim Ferris, an influential voice in this domain, has done an excellent job of pitching Katharine McCormick's story.
McCormick made her legacy by funding research on the Birth Control Pill, which fundamentally improved society, giving women more freedom to choose their destiny.
With this, McCormick solidified herself as a patron of humanity.
This Ethos is palpable in psychedelics.
Three Venture firms I learned about recently all have this ethos built-in:
The Psychedelic Medicine Syndicate donates 4.19% of their carry to non-profits and indigenous groups.
Vine Ventures has created a vehicle that allows an investment to be considered a donation until the organization is able to generate sustainable revenue (this is an excellent conversation from the Business Trip Podcast with Vine's Ryan Zurrer) and
Obvious Ventures created the World Positive Term Sheet, an agreement that includes guiding corporate values in addition to economics and control.
I wonder how representative these kinds of alternative investments are—how and when they are best used, how they benefit companies and the ecosystem/industry in positive, non-obvious ways?
Considering the reputational risk of the speculative markets employed in the cannabis sector and the departure of the biggest fish for NASDAQ innovative investment vehicles will play an outsized role in the psychedelic sector.