New 5-Year Psychedelics Warrants Offer Exciting Leverage Play

Will this be the next 100-bagger in psychedelic drug stocks?

For investors in small-cap stocks, their goal with each investment has become a cliché. The “ten-bagger”, a 1,000% return.

Ten-baggers are nice. But what about the opportunity for a 100-bagger – a 10,000% return? No, such profits are not mere urban legend.

The first 100-bagger in psychedelic drug stocks

In fact, investors in psychedelic stocks have already had an opportunity for a rare 100-bagger. Not via the purchase of shares, but through warrants.

MindMed Inc (CAN:MMED / US:MMEDF) produced a 100-bagger return for investors in 2020 off of its first series of warrants (MMED.WT).

Shortly before the Compass Pathways IPO (September 18, 2020), those warrants could be purchased for less than CAD$0.05. By December 14th, they peaked at a close of CAD$4.70. A hundred-bagger gain – in less than 3 months.

Now a new series of warrants has just commenced trading. But unlike the 2-year MindMed warrants, these are 5-year warrants.

What’s the difference?

MindMed’s warrants have (had) a lifespan of two years. They can be “exercised” to purchase a common share over a 2-year period before they expire.

The NEW opportunity in psychedelic stock warrants

MindCure Health (CAN:MCUR / US:MCURF) has just listed its own warrants for trading (on Canada’s CSE Exchange). And they have a 5-year lifespan: valid until February 10, 2026.

What a 5-year lifespan means is 2 ½ times as long to turn a profit on your investment.

For pessimists, it provides more downside protection. The warrants are currently trading “out of the money”, below their exercise price of CAD$0.80.

With a 5-year lifespan, these warrants provide investors with much more time for the warrants to trade “in the money” – and become profitable.

For optimists, a 5-year lifespan means 2 ½ times as long for this leverage to work for you.

A listed warrant trades with the same volatility of the underlying shares. But because it’s priced lower, those moves translate into much larger percentage gains, somewhat similar to buying options.

Back on September 22, 2020; Psychedelic Stock Watch alerted investors to the leverage opportunity in MindMed warrants.

At the time, they were trading at CAD$0.13, on the way to CAD$4.70.

We also told investors about the warrants for Numinus Wellness (CAN:NUMI / US:LKYSF), with the warrants trading at CAD$0.05. They were a ‘mere’ 37-bagger after that, closing at an all-time high (to date) of CAD$1.76.

Now we are alerting investors to the potential opportunity with MINDCURE warrants. Why?

MINDCURE is positioned to run

It’s more than just the 5-year lifespan on these warrants. MCUR is cheap.

With the psychedelic drug industry being capital-intensive, our favorite metric for valuing psychedelic stocks is cash-to-market-cap.

Before the psychedelics rally really got going in 2020 (that produced a 100-bagger for MindMed warrants and a 34-bagger for Numinus warrants), most psychedelic stocks were trading with a cash-to-market-cap of roughly 5:1.

Today, MINDCURE’s cash-to-market-cap ratio is ~3:1. This follows closing on an upsized CAD$23 million bought deal financing. It’s those warrants that are now listed for trading.

That deal only closed on February 10th. So now is a great time for bargain-hunters to be scooping up MCUR shares. But it’s (potentially) even a better time to scoop up MINDCURE’s new warrants.

We’ve been banging the drum about the value opportunity with MINDCURE.

The only other psychedelic stock to trade with a similar cash-to-market-cap was Cybin Inc (CAN:CYBN / US:CLXPF).
Cybin’s cash-to-market-cap was also very low when it first commenced public trading – and had also just closed on a very large financing.

On November 24, 2020, CYBN closed at CAD$0.74.
By December 18, 2020, CYBN closed at CAD$2.39.

That was more than a triple for investors, in less than a month.

No one can guarantee that MINDCURE will duplicate that performance. But with psychedelic stocks suddenly (again) seeing some explosive price action, it’s certainly a very real possibility.

New rally underway?

In fact, (with total market caps in the sector only a few billion dollars) the new rotation into biotech stocks could produce a rally in 2021 that dwarfs the 2020 rally in psychedelic drug stocks.

And if MINDCURE does duplicate (or surpass) CYBN’s performance, what sort of leveraged returns will be possible with MINDCURE warrants?

Investing in small-cap stocks is speculative. But with the current (and past) returns on psychedelic drug stocks, it’s looking somewhat less speculative for investors in this sector.

And few investment opportunities – of any kind, in any market – can equal the potential returns from psychedelic drug stocks today.

DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness, Cybin Inc and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.

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