Cannabis vs Psychedelics Stocks — Which Sector Wins?

Hey everyone, it is Julie here with TipRanks and I am joined with the CEO of The Street Pro, Jason Mashnek, where we're going to dive into one of his most recent articles on a pretty interesting topic today. Sometimes a bit divisive maybe in the investing world. We're looking at the cannabis sector plus some growing interest in the psychedelic niche as well. So Jason, thank you so much for joining me here today. Glad to be here. Now your your title here is pretty bold is that cannabis is overdone. Now it has been a hot topic for years but especially recently when the whole rescheduling conversation comes into play. So why do you think that investors might be getting a bit too optimistic right now? Well, yeah, so Doug Kass who I've talked about many times here before. He is I'm going to call him our resident pot expert or at least pot stock. He He talks about it frequently in in the diary in the community area and a lot of the other investors and traders who are in the community area are also uh let's just say enthusiasts I guess due to their their personal habits but I know that they're they're very involved in investing and trading this area. So they've been talking about it for multiple years. Doug alone has said that he's traded the cannabis stocks about 10 times over the last few years. So what Doug is doing, you know, he's he's a trader. He's always looking for great opportunities. Um so the reason why investors are so optimistic around and why it's it's come so much to the forefront is that uh recently we had the DOJ issue a final order rescheduling cannabis to for medical use but not recreational which is the larger market. So so that's really been the the big thing that's been driving a lot of the talk around it and and I think that the big thing to to know here and the reason why it's a little bit overdone, why investors are being so optimistic is that the medical market is important and and this is something that really opens up the opens up the discussion to legalize recreational cannabis usage but for now it's really focused just on the on the medical area. Yeah, so still limited there. Now another thing you mentioned in your article is the oversupply in the industry. So how much of a problem is that for pricing and profitability? Yeah, I mean that's that's a big issue. So a couple things that Doug mentions is that there's been a lot of discounting on the product. So I I guess never pay retail for for your cannabis. Same store sales have been have been weak and there's just too many stores out there and they're opening more every day. It's it's kind of like probably where we were with at least in Colorado where I am where we were with with microbrews a few years ago. We've seen a huge consolidation in that market. In this market just you know, we see continued opening and just maybe maybe not enough enough demand there yet. Now you did mention Doug Kass and that he's traded these quite a bit over the last few years but also you referenced that he's now exited his positions. So what stood out to you behind that? Yeah, so one of the interesting things is that Doug says he's completely he still does have holdings in in one security uh Glass House Brands g l a s f but it's it's a small position. So I haven't spoken to him and he actually didn't give any reason any rationale for why he held on to that one but just in the interest of full disclosure. Basically, you know, what stands out is Doug is a long-term bull in this industry, right? He's he's continually watching to see what's happening in the regulatory space and and and this initial order to reschedule medicinal cannabis is actually a really good thing but it's it'll really you know, because this industry is still or cannabis is still illegal on a federal level, it means that there's some issues around around around banking and you know, it's just it's it's not we're not really at the point where this is a mature market, I guess is what I'm I'm trying to say. Uh so Doug is going to look at this as a trading market very much and that as long as the regulatory environment continues to go their way which he thinks it will but you know, you never really know until you've gotten the final final ruling which I think there's going to be an additional ruling starting in in late June, June 29th I think is when they start having hearings. So Doug what Doug is saying is really this is an area that is highly risky and you should be cautious but but just watch it and and never try not to overpay. Don't chase the market. If you miss it, you miss it but it's one of those things where if you miss it, jump in, you could really you know, be taking on too much risk and actually lose money. So so be careful. There you go. So it sounds like it's maybe a bit more of a wait and see right now versus a buy the dip opportunity. Exactly. You know, wait wait for a better opportunity in this one. You know, buying the dip I think is safe or safer when we're talking about indices and you know, major companies but these are we're talking about really risky securities. You know, another another big thing is Doug talks about following the hot money here and and the hot money is already in and they're probably already out or they're getting out now. They're they're waiting uh they're they're looking for jumps and and the thing about the hot money here is that the hot money are short-term traders. Right? These they're probably retail traders. They are not the big institutions and and so that's one of the things that makes this market really risky and it and those are some of the things that uh when when we see uplisting occur, right? When we see some of these securities moving from the OTC markets or trading in in Canada uh in the case of some of them and start listing on the Nasdaq and NYSE, that will be a time when you might see larger more stable money flowing into them. For now it's really going to be momentum players, hot money traders, retail traders, all the things that do not make for a long-term investment. That is fair. That makes sense. Now in your article we then pivot on to psychedelics. So what's driving the growing interest in this space right now? So similar to the cannabis market, this is also government regulation. In this case this was an executive order by President Trump who came out recently, signed executive order to accelerate research and improve access to drugs like psilocybin and MDMA. So the hope is that these drugs will be able to be used to treat serious mental illness. Now and that obviously is a big push that uh from the policy makers there to accelerate the research thing. Is that kind of the the obviously biggest and like only catalyst here are there other things attracting people to this space? Yeah, I think I think that is the the biggest thing. The other thing to remember is that unlike the cannabis stocks that we just talked about, the stocks in this space are actually they're actually pharmaceutical companies. So so this is a more mature market and this is something that you know, a mutual funds and institutional players can actually be involved in. So that's that's really good. You've been seeing I know here in Colorado we we've legalized we've legalized I think well mushroom usage recently. So it's just something that it really comes down to regulations and and you're just seeing it opening up to more and more people not just on the medical side but also at least at the state level on the recreational side. Now you did mention in your article that these stocks can be even riskier than cannabis. So what makes them particularly volatile? Well, some of the things I don't know if they're necessarily riskier than cannabis but certainly very risky. Some of the things that Ed points to and that's not necessarily the case with the stocks that we're talking about today but just in general and and this is the case for probably all or many small cap stocks and certainly many smaller cap pharmaceutical companies like these, they trade with lower market caps. So you don't have a lot of money chasing them. It could be hard for those they're low volume, right? They just don't necessarily trade a lot and one thing that that means is that when they don't trade a lot, that also means that the spread between the bid and the ask. So when you buy a stock, typically as a retail investor, you you'll probably be paying the ask, the offer price and then if you go to sell it, you you sell it at the bid where the institutional traders are are playing and and so those spreads tend to be a little bit wider in companies like this. Now I took a look before before our video today and both cases the the two stocks that we're looking at both had fairly tight spreads and they both trade, you know, uh they can trade over a million shares a day. Uh so I think that's part of the reason why Ed selected these stocks but there's so many more stocks out there. So you just have to be careful with with some of them. And that brings us to the stocks here that we're highlighting. So I know we have two stocks but we also have an ETF that I want to start with. You guys you highlight the AdvisorShares Psychedelics ETF. So why is this an interesting way to get exposure? Doesn't that sound fun? It's a ticker symbol p s y l. Yeah, so I I looked I looked before this. So the big thing that you get with an ETF is that you get you get diversification, right? You're you're buying one security but you have access to in this case took a look and they have how many holdings? It was 30 31 I think holdings. The largest one being a company called atai Life Sciences. That's 10% of the portfolio. So you know, so that's that's the big advantage there is that you get broad access to major themes in the in the industry. The downside is if one of those stocks becomes really hot and the others don't and well, you don't necessarily own just that stock but fact is you probably weren't going to own that one anyway. That is fair and that brings us then to individual stocks. You guys pointed out Neurexine Biosciences and this is a more established name. So how does this stand out compared to smaller players in this space? Yeah, so this one has a 12 or 13 billion dollar market cap. It's a fairly large company. They are a pharmaceutical company that focuses on neurological, endocrine and psychiatric disorders like Parkinson's, endometriosis and uterine fibroids. The other thing is they are in phase two trials right now for schizophrenia. So they you know, they're an established company. They're dealing with issues that many people have these days. So there's a large large market and probably a growing market all of their all of their products as well. Yeah, this company has been rallying. It's it's up significantly 3x in the last 10 years. It's sort of a long-term uptrender. In the last year, it's been a little bit more difficult. This year, I think it's down about 7%, but it's up 28% over the last 12 months. Right? So, so there's a lot going on here, and it's an interesting stock that Ed thinks is is worth a look if you're interested in in this area. >> Cool. And then the second one, a bit more in the speculative side, it seems like, that was Definium Therapeutics. They had a huge run recently. What should investors look at and like should they consider chasing a run like that? Yeah, enormous run in this one. So, Definium is a clinical stage biopharmaceutical company focused on psychoplastogens. Another one of those words that I have to read for drugs. Sorry, that that their their drugs include, you know, things like LSD and ketamine. Right? So, you know, we're all again familiar with. We hear a lot about ketamine usage. We talked about it just a couple weeks ago with with Elon Musk, where there was at least speculation into his ketamine usage. So, it all comes back to Tesla, doesn't it? Always. Always. Right? So, again, these are drugs for the treatment of of psychiatric disorders. I think they talk about brain health in in some of their materials. Yeah, so it's it's a younger company. Again, you know, it's clinical stage biopharmaceutical company. So, that clinical means that they're in clinical trials, right? So, so it becomes a little bit more speculative there. If you win there, you win big. If you lose, you lose big. Company also was previously known as MindMed. I feel like I should note that. The consensus upside So, the stock has been been rallying significantly over the years, but we're looking at a the consensus on TipRanks is for $39, which is close to a 100% upside in the stock right now. So, yeah, I'm looking to see if there's anything else that is important to mention on that. You know, one thing that's important to mention with both of these companies, just adding to the level of risk, they both report earnings next week. Definium on May 7th and Neurocrine on May 5th. So, that's something to watch as well. If you're a gambler, maybe you go in before the earnings, do some research ahead of time. If you're not, you might want to wait until after. Yeah, can be a coin toss what way they go after those reports. Exactly. To sum it all up, if you had to compare the two right now between cannabis and psychedelics, where do you think the better opportunity lies? Well, I think that the big thing is that in both cases, the opportunity is really long-term. I think they're both speculative in the shorter term. Now, one thing that we've seen even since since Ed wrote his article, he was talking about how Definium was maybe a a little bit of a wait-and-see. It actually has come down a bit. So, to to a slightly better price. I would say at this point, you know, be careful, but but certainly the the psychedelic space seems like it might be a little bit better time-wise than the cannabis space. Sure, especially if we end up with some catalysts here from those policy makers. That'll be exciting. Well Exactly. >> insights today, Jason. Of course, for all of our viewers, keep in mind these videos are never a suggestion to buy or sell any specific stocks. So, make sure you always do your own research and due diligence, and let us know your thoughts in investing in this sector in the comments down below. Always appreciate hearing from you, and we're going to have Jason's article linked down there, so you can read even more about it. Thanks so much for your time today, Jason. Exactly. Thank you, Julian. The article has not been published yet on TipRanks, but it will be hopefully today. And then, as always, you know, if you're interested in learning more about the the companies that we're talking about and the contributors who I mentioned, feel free to check out thestreet.com at pro.thestreet.com. Thanks a lot.