The Mental Health Miracle Taking Wall Street By Storm

Decades ago, Harvard Psychologist Dr. Timothy Leary flaunted the law by openly smoking marijuana -- and was once even arrested for smuggling cannabis.

But Leary went on to become truly famous and rich when he shifted the focus of his drug use and experimentation from cannabis to psilocybin.

Psilocybin is a naturally occurring hallucinogenic found in certain fungi, which were quickly labeled by the press as “magic mushrooms.”

Now Lobe Sciences (formerly Greenstar Biosciences) is following a path that is in one way similar to Leary’s—specifically, a transition from cannabis to psilocybin.

Patients stand to benefit from the psilocybin-based medications Lobe Sciences (CSE:LOBE; OTC:GTSIF) is actively developing for treatment of concussion, PTSD, depression, and other mental disorders.

According to CEO Tom Baird, both activities -- exiting from the cannabis business as well as the company’s new focus on psychedelic drug R&D – could significantly increase Lobe’s market value.

How so? Well, to begin, cannabis and mushroom-derived psychedelics, though both plant-based, are two fundamentally different businesses.

Psychedelics are evolving into a mainstream pharmaceutical/medical business, with a growing number of potential new prescription drugs in the pipelines. As far as “taking a trip” on mushrooms is concerned, psychedelics are likely years away from being made legal for recreational sale and consumption.

Cannabis, on the other hand, is being legalized throughout North America for both recreational and medicinal usage.

Very few FDA approved drugs are resulting from either Cannabidiol or THC, the active ingredients in cannabis. The New York Times reports that the initial rush to cannabis has not proven to generate the value that was originally assumed. In fact, during the first year after nationwide legalization in Canada, the value of shares in Canada’s 6 largest cannabis companies dropped by an average of 56%.

Reasons: Barriers to entry are low. Taxes are killing the consumer market. And each province has a different set of regulations when it comes to retail sales, which in essence makes every province its own unique retail market.

In sharp contrast, psychedelics have been embraced by the U.S. federal government, in particular by the Defense Advanced Research Projects Agency Department of Defense, or DARPA and there are many examples that the FDA has approved numerous Investigational New Drug (IND) studies.

DARPA recently entered into a $26.9 million agreement with the University of North Carolina (UNC) School of Medicine to develop psychiatric medicines. And the FDA is allowing trials with hallucinogenic drugs.

In 2012, the FDA introduced its Breakthrough Therapy designation to expedite the development and review of drugs in cases where preliminary clinical evidence demonstrates they could provide a substantial improvement over available therapies for serious or life-threatening diseases. Last year, the FDA granted Breakthrough Therapy designation for  two psilocybin-based drugs to treat major depressive disorder (MDD).

The bottom line: Psychedelics are increasingly being made into FDA-approved medicines, funded in part by the federal government, prescribed by medical doctors, and viewed by health care professionals as “must-have” drugs.

At the same time, cannabis has largely been relegated to the lower status of a “nice to have” drug, one taken both for recreation and as an alternative medicine.

Controlling a $20 million cannabis asset for $50,000

Until recently, Lobe Sciences (CSE:LOBE; OTC:GTSIF) focused on developing licensed cannabis businesses in the U.S.

Lobe’s major cannabis asset is an exclusive option to acquire 100% of the stock of Cowlitz County Cannabis Cultivation (CCCC) for USD $50,000.

A fully licensed cannabis processor in the state of Washington, Cowlitz is active in about 90 dispensaries, with annual cannabis sales of around $20 million.

In the cannabis sector, average revenue multiples for U.S.-focused operators stand at 2 times 2020 sales. Using that metric, if we are conservative and base the sale price of Cowlitz at a 1X revenue multiple, we get a valuation of $20 million.

But the market doesn’t seem to be valuing the $20 million asset in Lobe’s market capitalization. And Lobe’s current market cap stands at $9 million.

Now, if and when Washington makes cannabis regulations more favorable, Lobe might be permitted to exercise the option – and in doing so, could potentially gain full ownership and control of Cowlitz’s $20 million cannabis business for only $50,000 -- a return on investment of 400 to 1.

If the option was successfully exercised, the $20 million in cannabis revenue would go immediately onto Lobe’s financial statements -- and the company’s value could jump significantly. 

In the meantime, Lobe is evaluating other strategic options for Cowlitz. One choice is to sell or otherwise spin out Cowlitz -- in order to capture the Cowlitz asset value.

The asset to be sold would be the option to acquire Cowlitz County Cannabis. Using conservative metrics, a multiple of 1 to 1.5 top-line revenues would be a reasonable sale price.

Shareholders could realize that value either in dividends from the company post-sale, or in ownership of shares of a new company that is able to fully own and operate Cowlitz.

“Selling the Cowlitz asset is good for Lobe shareholders in a number of ways,” says Baird. “We would become a company focused on psychedelic-based and transformative medicines.

And the market is rewarding this focus in other companies.

Take Mind Medicine. They were the first publicly traded company in the booming transformational drug industry. But their pipeline spans several other conditions affecting millions, including anxiety, chemical dependence, and adult ADHD.

Right now, Mind Medicine has multiple FDA trials in Phase II. And they’re moving quickly, which could help explain why Mind Medicine shares have more than doubled over the last 2 months.

Champignon Brands is another fast mover in the transformative medicine industry. Along with a successful IPO earlier this year, they’ve had a flurry of acquisitions, bringing a number of valuable pieces into their pipelines. As they’ve continued to grow quickly throughout the year, they’ve also rewarded shareholders nicely, more than doubling their gains since their IPO in March.

An emerging player in psychedelic drugs

Recently, Lobe Sciences (CSE:LOBE; OTC:GTSIF) acquired Toronto-based Eleusian Biosciences as part of its strategy to transition from a cannabis company to a drug company in the nascent psychedelic medicine sector.

Eleusian boasts a strong and diversified patent pipeline in the psychedelic space. For example, the company has already undertaken significant R&D work on the usage of psilocybin in combination with the amino acid N-acetyl cysteine (NAC) to address mild traumatic brain injury (concussion) and PTSD.

In fact, Lobe has 5 provisional patents under development for preclinical studies on their core intellectual property (IP) of psilocybin combined with NAC.

“A number of companies in this space are developing IP but have not begun any of the clinical work needed to take them into FDA trials,” says Baird. Through its acquisition of Eleusian, Lobe Sciences is now working with the University of Miami’s Miller School of Medicine, a recognized leader in neurosciences research, to conduct its preclinical studies.

Innovative drug delivery for better bioavailability

Lobe Sciences (CSE:LOBE; OTC:GTSIF) is one of the few, if not the only, companies developing new medical devices for delivery of psychedelic medicines.

Its first product in research and development is a nasal misting system that delivers a fine spray of the drug much deeper into the nasal cavities than conventional sprayers.

“Psilocybin is a psychedelic,” says Baird. “Our new nasal cavity sprayer is being designed to produce atomized droplets that contain safe micro-dosages, ensuring that the drug is efficacious without causing the patient to hallucinate.”

In addition, because the Lobe dispenser reaches deep into the nasal cavity, the drug is introduced onto tissue extremely close to the brain.

Therefore, the nasal spray has a much quicker path to the brain than ingesting the drug in a pill or liquid taken orally that has to fight its way through the entire metabolic process – speeding absorption and improving bioavailability for Lobe’s drug.

Psilocybin goes mainstream

Psilocybin, once thought of as a “hippy drug,” has now gone mainstream.

Johns Hopkins reports that a slew of upcoming studies will evaluate psilocybin’s efficacy as a new therapy for depression, Alzheimer’s disease, chronic Lyme disease, anorexia, and alcohol abuse.

Lobe Sciences (CSE:LOBE; OTC:GTSIF) focus is on developing several new drugs combining psilocybin and NAC. One major application is to improve brain function after a concussion; another is for mitigating the effects of PTSD.

PTSD is normally associated with deployed members of the military as well as individuals who have endured extreme trauma and violence.

But in the era of coronavirus pandemic, according to Hartford HealthCare, the physical stress and lingering emotional scars of COVID-19 infection are causing many patients to suffer post-traumatic stress disorder (PTSD).

As such, the demand for drugs that can help treat PTSD may continue to skyrocket, at least in the near future – further increasing the enormous spending worldwide on prescription medications for psychiatric disorders.

In 2019, legal global sales of psychedelic drugs were an insignificant $2 million. Today, the psychedelic drug market is growing with a CAGR of 16.3% in the forecast period of 2020 to 2027--and is expected to reach over $6.8 billion by 2027.

In addition, by 2025, global sales of all drugs that specifically treat PTSD have projected to exceed $10 billion.

If Lobe Sciences develops a successful Psilocybin-based drug that captures only 1% of that projected market for PTSD therapeutics, annual gross revenues for that one new product alone could reach $100 million – a huge win for Lobe.

Lobe Sciences (CSE:LOBE; OTC:GTSIF) core psilocybin-and-NAC medicine is currently in the first phase of the 5-step FDA approval process .—putting Lobe on a path by which it could become a major player in the fast-growing psychedelic and transformational medicine industry.

Other companies in this space are also jockeying for position. One of these is Compass Pathways. The company is already a major player in the transformative medicine niche, with backing from big names like billionaire Peter Thiel. They were recently granted FDA Breakthrough Therapy designation for their psilocybin medicine for treatment-resistant depression-- an amazing accomplishment that helps validate others in the industry, including Lobe Sciences. With over 100 million people suffering from depression, Compass’s treatments could deliver hope to patients who are running out of options.

Or consider Field Trip Health, based out of Toronto. Field takes a three-pronged approach in their work in transformative medicine. Not only are they developing new drugs, but they also own and operate multiple treatment clinics. The company already has clinics operating in Toronto, Los Angeles, and New York. They plan to open another 75 clinics offering psychotherapy along with psychedelic treatments.

A bright future for psychedelic drug makers and investors

Lobe, Field, Compass, Champignon, Mind Medicine, and many other biotech firms are contributing science, technology, products, and unpreceded growth to the psychedelic and transformational drug sector.

“A rising tide lifts all boats” is an old and true principle. Says Lobe Sciences CEO Baird. “As the usage of FDA-approved psychedelic medicines grows at breakneck speed, Lobe and its investors stand to profit handsomely.”

The cannabis boom has already set the stage

Cronos Group (TSX: CRON) is another cannabis company that took a hit during the first half of the year. Since then, however, it has seen a surge in trading volume, with a renewed investor interest in the struggling marijuana sector. This sentiment switch has also been reflected in its share price. Since September, the company has seen its share price jump from $5.04 to a price of $7.23 today, representing a 43% return in just a couple of months.   

Cronos, though primarily an equity investor, has also been making some major moves in recent years, locking in landmark deals with some of the hottest names in the budding marijuana sector. Because of its ambitious plans and history of sucess, it has drawn the attention of some of the world’s most influential companies, including the company behind Marlboro, Big Tobacco megalith Altria Group, which purchased a 45% stake in the company in 2018 for a total of $2.4 billion.

CEO of Cronos Group, Kurt Schmidt has kept his head up despite the tough year, noting in the most recent earnings call that “Our [Cronos Group] value will come from technology breakthroughs and branded sales that will help establish relationships with our consumers. There's top-tier talent across this organization and I'm excited to lead this impressive team into the next phase of growth.”

Aphria Inc (TSX:APHA) is the world’s third largest cannabis company. The Ontario-based marijuana giant currently has operations in 10 countries and distributes legal medical cannabis across the globe. And thanks to its unique approach to thiss emerging market, Aphria has been able to weather the pandemic storm better than many of its peers.

A fantastic example of its unique approach to the industry is its recent acquisition of SweetWater Brewing, one of America’s largest craft breweries. Aphiria’s bet on SweetWater is part of its strategy to capitalize on the booming ‘lifestyle’ market associated with craft beer and marijuana.

“We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise. At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization,” Aphria Chairman and CEO Irwin Simon noted.

Aurora Cannabis (TSX:ACB) is another giant in the Canadian marijuana business. Through years of hard work and a strong management team, Aurora has carved out its position as a leader in the industry. As a veteran in the marijauan market, Aurora has been able to close a number of high-profile deals, including the acquisitions of CanniMed and MedReleaf. And it’s not stopping there.

Recently, Aurora announced a deal to supply Cantek, a leader in Israel’s booming medical marijuana market, with as much as 4,000 kgs of dried product per year. Miguel Martin, Chief Executive Officer of Aurora explained, "We are excited about our strategic relationship with Cantek, a leader in the Israeli market. This Agreement provides Aurora with a great opportunity to expand our medical cannabis brand and industry leading science in one of our key international markets of focus.”

Despite its wheeling and dealing, however, Aurora has had a tough go at it this year, with its share price falling by 67% from $21.96 to $7.06 at the time of writing. The decline does, however, present an in for investors looking to jump onto a solid cannabis company at a discounted rate!

Canopy Growth Corporation (TSX:WEED) has had an incredible year compared to many of its peers. Though Canopy reported a slight drop in year-over-year revenue in its third-quarter filings, its share price has remained resilient thanks to some of the biggest partnerships in the business. In fact, just this year Constellation raised its stake in the promising cannabis giant once again, investing another $174 million into Canopy, raising its stake to 55.8%. David Klein, CEO of Canopy Growth, noted “This additional investment validates the work our team has done since attracting the initial investment in 2017. It also strengthens our ability to pursue the immense market and product opportunities available to Canopy in Canada, the US and other key global markets.”

In addition to its long-standing relationship with one of the biggest adult beverage distributors on the planet, Canopy is also rubbing shoulders with celebs. Recently, Canopy teamed up with Martha Stewart to launch a new brand of CBD edibles in a variety of flavors.

Thanks to these market moving moves, Canopy has blown its peers out of the water this year. Though its share price fell to a low of $10.37 in March, it’s soared by over 131% since then. And as bullish news continues to mount for the emerging industry, including a potential lift on the federal marijuana ban in the United States, Canopy might just be one of the hottest stocks on the market to keep an eye on.

While most of the major pot-stock news comes from Canada, one of the industry's top wheelers and dealers actually comes from California. MedMen Enterprises (CSE:MMEN) is quietly gaining traction in the U.S. market, largely thanks to its strategic acquisitions and focus on expanding its domestic footprint.

In just a year, MedMen has closed on two major deals, including its buyout of California-bases retailer One Love and its acquisition of medical-marijuana provider PharmaCann.

By. Bob O’Connor


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