Psychedelics is one of the fastest-growing areas of the cannabis-related industry and is now one of the 12 subsectors covered by the Viridian Capital Deal Tracker, Value Tracker, and Credit Tracker.
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Investors perceive a rapidly growing market for psychedelic drugs fostered by the global need for effective mental health treatments, evolving legislation, and supportive public opinion. A recent study by Fairfield Market Research projects demand increasing to $6.3B by 2026, a 16% CAGR. In clinical trials, Psilocybin has been found to be as effective as the leading anti-depression medications with fewer adverse side effects and lower relapse rates. Research is underway on synthetic forms of Ketamine and other psychedelics as well.
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The top graph shows ten of the most widely followed names in Psychedelics. The top five have over $500M market cap, perhaps surprising since none of these companies is a household name. The ten share several common operating and financial themes:
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Internationally diversified: The top 5 companies are based in Germany, Ireland, Australia, the U.K., and the U.S.
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Pre-Revenue and negative cash flow: As would be expected, these early-stage research-based companies have no revenues and are burning cash.
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Well-funded with good liquidity: The companies on this list have an average of 35.7% of their market caps in cash. Viridian's cash flow adjusted current ratio shows all of them, except Incannex, to have more than a year of runway given their current cash burn rates.
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Most of the ten trade on senior exchanges: The pharmaceutical drug nature of these companies allows them to trade on senior exchanges. Six of the ten trade on Nasdaq, one trades on NYSE, and the other three trade on TSX, AXC, and OTC.
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With the vast differences between these firms and cannabis cultivation & retail companies, one might expect they would trade very differently. However, the bottom graph shows that investors have treated them quite similarly to cannabis companies.
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These businesses' pre-revenue and drug trial-dependent nature make them difficult to value, but they generally trade between 1.7x and 3.0x book value.
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Investors should begin to pay more attention to this subsector which will benefit from any legislative momentum developed in cannabis and have non-correlated returns.
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.
Launched in January 2015, and having analyzed more than $60B in deals, the Viridian Cannabis Deal Tracker is a proprietary data service that monitors and analyzes capital raise and M&A activity in the legal cannabis, CBD and psychedelics industries. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:
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Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)
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Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A)
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Principals to the Transaction (Issuer/Investor/Lender/Acquirer)
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Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
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Deals by Location of Issuer/Buyer/Seller ( To Track the Flow of Capital and M&A Deals by State and Country)
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Credit Ratings (Leverage and Liquidity Ratios)
Photo by Javier Hasse.
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
