Summary:
With Peter Thiel backed ATAI Life Sciences hitting a $2 billion valuation, it has become clear that the psychedelics space is set to explode.
The ship has likely already sailed on ATAI’s holding COMPASS Pathways (and there’s problems there anyway) but companies like Allied Corp (OTCQB: ALID) and DELIC Holdings, Inc. (OTCQB: DELCF / CSE: DELC), with significant cannabis and psychedelics expertise, could be a perfect opportunity for investment now.
To understand why cannabis experience is relevant in the psychedelics space, it's important to understand the profound impact cannabis legislation has had on public perception.
By 2020, support for cannabis rose from just 12% in 1969 to 68%.[1] As support for cannabis legalization has risen, so has support for legalizing other substances for medicinal treatment. For example, Colorado has legalized or decriminalized all drugs, and a number of states have moved to decriminalize or legalize psilocybin (magic mushrooms). Washington D.C. passed The Entheogenic Plant and Fungus Policy Act of 2020 on Nov. 3 with 76.3% support.[2]
While much of the focus has been on the recreational potential of deregulation, it also opens the doors to significant advances in medical treatments, particularly in mental health.
Before diving into the specifics of ketamine and psilocybin, let’s take a moment to look at existing mental health treatments, and why they don’t always work. The most commonly prescribed drugs for depression are selective serotonin reuptake inhibitors (SSRIs), such as Prozac.
Depression is largely caused by an imbalance of certain chemical messengers (neurotransmitters) such as serotonin. When these aren’t working, it means that certain brain signals can’t be passed across nerves properly, leading to many potential mental health issues. Prescription based SSRIs and other traditional antidepressant treatments work by increasing the availability of the chemicals in the brain.
While these treatments can work for some, they are not always effective for others. Some can come with significant physical as well as psychological side effects, such as a lowered sex drive.[3] The bigger problem is that antidepressants often lose their effectiveness over time and do not work in all cases. There are also significant concerns that antidepressants are being over-prescribed in cases where they may not be the very best solution for the patient.[4]
Despite these real concerns, the pharmaceutical industry has largely abandoned its efforts to find new mental health treatments.[5] Fortunately, recent advances have opened the door to novel treatments.
While there are a number of psychedelics (see my previous article here) that could be useful for treatment, there are two in particular that are showing incredible early promise:
Ketamine: One of the main areas where antidepressants fall short is in the treatment of major depression. Where other treatments can take weeks or months to take effect, ketamine treatments can often help bring significant improvements to patients. This makes it especially useful for high-risk patients who need intervention immediately. There already exists ketamine clinics in operation in the United States.
Psilocybin: This is a naturally occurring psychedelic compound produced by over 200 species of fungi (mushrooms). The FDA has already given it breakthrough therapy status for treatment-resistant depression, generally considered to be a promising remedy.[6]
As the bigger pharmaceutical companies have largely abandoned current mental health medications, this has opened the door for smaller companies to spearhead the efforts to solve this worldwide enormous mental health issue. This in turn creates an opportunity for investors to invest in worthwhile efforts, and potentially get rich in the process.
An example of the potential of psychedelics can be seen in the $2 billion valuation given to Atai Life Sciences AG following the German company’s $157 million in a Series D financing round led by founder Christian Angermayer and Thiel Capital, with indications that the company is beginning to consider an IPO.[7]
Now we can’t see Atai Life Sciences financials as they’re still a private company, but Atai also happens to be the majority shareholder of psilocybin darling COMPASS Pathways PLC (NASDAQ: CMPS).
This is interesting because while COMPASS Pathways has an impressive array of clinical trials and acquisitions, it has found itself unable to make a profit. The company’s losses in 2020 were $60.3 million, or $3.55 per share including non-cash share-based compensation amounting to $18.0 million. It is likely, but impossible to confirm, that Atai Life Sciences could be in a similar situation.
Despite subjective financials, the excitement building around Atai Life Sciences demonstrates that we are beginning to reach a watershed moment in the psychedelics space. If investors want to take advantage of this, they need to identify the right opportunities now.
To do that they might need to look at companies doing the opposite of Thiel’s investment, a negative generating revenue model, and I have two of them right here...
DELIC Holdings (OTCQB: DELCF / CSE: DELC) represents something of a unique oddity.
It is a psychedelics wellness company with a strong focus on media coverage while providing investors with exposure to a variety of breakthrough mental health treatments via a single roll-up investment. The company is headed by cannabis veteran Matt Stang, former chief revenue officer (CRO) of world renowned cannabis publication High Times.
In stark contrast to many companies operating in what is in effect an emerging market, DELIC is focusing on opportunities that it can monetize now as well as for future pay-outs. The most important way they have done this is by moving into legal mental health treatments immediately. The company recently acquired Ketamine Infusion Centers LLC (KIC), which owns and operates ketamine infusion treatment clinics in Arizona and California. [8]
This acquisition not only gives DELIC control over an asset that has generated more than $1.5 million in revenue since 2019 but gives the company the ability to actually treat patients. Additionally, it provides DELIC with access to KIC’s talented employees who have 15 years proven success in the clinic and medical space, scaling and operating over 20 clinics.
Speaking of talent, DELIC’s most recent acquisition is potentially the strongest argument in its favor. The company has announced that it acquired the consistently profitable company Complex Biotech Discovery Ventures (CBDV), a licensed psilocybin and cannabis research laboratory. [9]
This will enable DELIC to engage in scientific-based research and analytics along with the development of proprietary treatments. Additionally, it has enabled the company to gain the services of Dr. Markus Roggen, one of the leading minds and influencers in the cannabis space with significant industry experience.
More importantly, the newly named DELIC Labs has been granted a “Section 56 exemption” by Health Canada, giving legal authority to perform research and analysis of psilocybin metabolites.
Finally, the company has created the bedrock of assets required to inform the public about the benefits of psychedelics and other mental health treatments. Their ecosystem consists of educational wellness platforms with a combined reach of more than 300,000 active users, the recently acquired Homestead, and a flagship event.[10]
This gives DELIC an instantly monetizable asset that will form an important part of the emerging psychedelics ecosystem.
WATCH VIDEO: DELIC Holdings (OTCQB: DELCF / CSE: DELC) "Psychedelics Ecosystem for Shroom Boom."
While DELIC’s acquisitions are varied, there is a common thread. The company is both focusing on its founder’s strength, psychedelics media, and targeting a revenue generating roll up strategy with pre-existing talent.
This is hugely positive as it demonstrates that DELIC isn’t just a moonshot. The company has a plan, and it is being executed by bringing in assets with real staying power. It is easy to forget that revenue now is as good, or better, than profit later, so long as the right plan is in place.
Another solid example of a high-potential psychedelics company is Allied Corp (OTCQB: ALID). The company has built out a facility in Colombia, with a per gramme construction cost of just $0.05–$0.10 USD compared to an industry average of $1–2.
The property includes an 8,700 square foot facility with cultivation rooms, and a C1D1 approved room for ethanol and C02 extraction. This facility is licensed to produce, extract, import and export both psychoactive and non-psychoactive (CBD) products, and hosts one of Colombia’s leading agricultural genetics teams.
Aside from this facility, Allied has also entered into a letter of intent to acquire a US-registered cultivation license located in Nevada VIA Fiore Cannabis (OTCQX: FIORF / CSE: FIOR). The letter of intent includes a land lease agreement for the location of Allied’s ready built 9000 square foot GMP-compliant facility in Las Vegas. This facility includes cannabis and psilocybin research and production facilities (as legislation allows) and will make it easier for Allied to access the U.S. market.
In addition to its facilities, Allied Corp already has a range of marketable CBD-focused products. The first, and most impactful, is Tactical Relief. Without marketing, this product has already proven capable of selling, on average, 20 bottles per store, at around $6 in profit per bottle.
This is impactful because in June 2020 the company signed a deal with Hollister Biosciences (OTC US: HSTRF / CSE: HOLL), increasing its distribution footprint by around 1,200 stores. Even if Allied Corp were to do no marketing and release no new product lines, this deal could give them a baked-in profit of around $144,000, just from the Tactical Relief line.
I believe the final number should be significantly larger than this. The company will be rolling out an aggressive marketing campaign for Tactical Relief, as well as producing a number of other CBD products. This includes its high potential Bio Equilibrium lifestyle brand, which is laser targeted at young, health conscious individuals. In short, Allied Corp is already making real money.
Aside from this immediate revenue, the company also has a long-term plan to expand its R&D operations and focus on psilocybin-based treatments for PTSD — an issue that affects 1 in 11 people in their lifetime.[11] The company has recently completed the acquisition of Pacific Sun Fungi (“Pacific Sun”), which already has a range of psilocybin-based products ready for clinical intake that consist of both novel functional mushroom formulations including psilocybin and additional medical mushrooms.[12]
Allied’s focus on PTSD, opioid addictions, alcoholism and chronic depression / anxiety disorders is positioned to be profitable. The company is expecting to generate revenues, accounting for EBITDA, of around $159 million USD by 2023. The expected bulk of these revenues will come from their production facilities in the short term, with long-term revenue coming from other sources, such as pharmaceutical licensing.
Similarly to DELIC Holdings, Allied Corp already has revenue generating activities along with big long-term ambitions. The company clearly wants to diversify out of the crowded CBD space into more specialized pharmaceutical markets, while still generating revenue.
The company plans to target three key sectors including CBD extraction, CBD products, and psychedelic-focused treatments for PTSD and other mental health disorders. In all, this gives Allied Corp an addressable market of around $115.9 billion.
From the perspective of an investor, Allied’s long-term plan does make fiscal sense. Even if the company were to struggle to make headway with its PTSD treatments, it would be able to fall-back on its strong CBD experience, providing a redundancy that more “single issue” companies would be unable to replicate.
ATAI Life Sciences’ valuation demonstrates that we’re beginning to move out from the accumulation stage of the psychedelics space, into the absorption phase. This means that your window of opportunity to take advantage of steep discounts is closing.
There are undoubtedly other excellent opportunities out there but I believe that both Allied Corp (OTCQB: ALID) and DELIC Holdings (OTCQB: DELCF / CSE: DELC) represent a yardstick by which other high-potential investment opportunities should be measured. This is thanks to their existing revenue positive assets and executive teams with significant experience in the cannabis sector, which translates well into psychedelics.
Saul Bowden, Contributor
for Investors News Service
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SPONSORED ARTICLE DISCLAIMER: Investing in any securities is highly speculative. This article constitutes a conflict of interest as Allied Corp and Delic Holdings are sponsored clients. Please be sure to always do your own due diligence before making any investment decisions. Read our full disclaimer here.
[1] https://news.gallup.com/poll/323582/support-legal-marijuana-inches-new-high.aspx
[2] https://www.npr.org/2020/11/04/931507602/from-marijuana-to-mushrooms-voters-want-drug-laws-eased
[3] https://www.health.harvard.edu/mind-and-mood/what-are-the-real-risks-of-antidepressants
[4] https://www.nybooks.com/articles/2011/06/23/epidemic-mental-illness-why/
[5]https://www.theguardian.com/society/2016/jan/27/prozac-next-psychiatric-wonder-drug-research-medicine-mental-illness
[6] https://www.livescience.com/psilocybin-depression-breakthrough-therapy.html
[7]https://www.bloomberg.com/news/articles/2021-03-03/thiel-backed-magic-mushroom-firm-atai-hits-2-billion-valuation
[8] https://finance.yahoo.com/news/psychedelic-wellness-focused-company-delic-133000473.html
[9] https://finance.yahoo.com/news/lumiradx-receives-fda-emergency-authorization-100000201.html
[10] https://finance.yahoo.com/news/psychedelic-wellness-focused-company-delic-133000900.html
[11] https://www.psychiatry.org/patients-families/ptsd/what-is-ptsd
[12]https://www.globenewswire.com/news-release/2021/02/02/2168247/0/en/Allied-Completes-Acquisition-of-Pacific-Sun-Fungi-A-Leader-in-the-Psilocybin-Space.html
