Psychedelics Surge Forward as the Australian Cannabis Index Continues to Recover Lost Ground

Australian cannabis companies are showing signs that they're beginning to rally, while psychedelics have enjoyed a meteoric rise with US investors.

Over the last month the Australian Cannabis Index has undergone a significant rebound, reaching a high of 12.64 this week, which represents the strongest performance from the sector since June 2020.

Despite the economic turmoil wrought by the arrival of the COVID-19 pandemic—which limited consumer spending habits and rocked the market's confidence—cannabis companies have begun clawing back the ground lost when the market collapsed in March this year.  

By establishing this new trajectory for federal policy, we expect that more states will revisit and amend the archaic criminalization of cannabis, establish regulated consumer marketplaces, and direct law enforcement to cease the practice of arresting over half a million Americans annually for marijuana-related violations—arrests which disproportionately fall upon those on people of colour and those on the lower end of the economic spectrum."NORML Political Director, Justin Stekal

This upturn appears to largely be the result of a series of positive announcements, including a recent vote on decriminalizing cannabis in the US House of Representatives, as well as the Australian Therapeutic Goods Administration's (TGA) interim ruling on the sale of over-the-counter CBD.  

Conversely, the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ) actually ended the week down several points, having fallen from 10.14 by midweek to 4.01 within a matter of days, while the S&P 500 Index and the AORD ended the week at 14.84 and 13.27, respectively.

This was partly caused by a recent surge in interest in companies that work with hallucinogenic drugs such as psilocybin, which has led many pundits to predict that psychedelics may soon displace cannabis as the most popular money-making vehicle for forward thinking pharma-investors.        

"People see this potentially as a get-rich-quick mechanism, just like you saw in the early stages of cannabis," said Grey House Managing Partner Sa'ad Shah in an interview with Bloomberg.

"They feel they don't want to have another FOMO situation here."

The newly minted sector is already attracting significant interest from prominent industry figures such as Facebook and PayPal investor, Peter Thiel, and Dr. Bronner's Magic Soaps CEO David Bronner.

And according to the Managing Partner of investment group JLS Fund, Simeon Schnapper, investing in psychedelics has yielded the "best returns in any industry" for the company.

"The possibilities for psychedelics to be a new medicine and replace antidepressants is 100 times greater than cannabis," Schnapper said.

Keeping this in mind, let's examine some of the ASX-listed shares that have driven the market forward over the last week.

Creso Pharma

Creso Pharma (ASX:CPH) ended the week down almost 30%—as stock in the company plunged to 0.26 by the end of trading Friday—despite reaching a mid-week high of 0.46 per share. 

The decline in share price seems to be a hangover from the buying frenzy that was sparked earlier this week after a series of exciting announcements from the company sent its stock value climbing by more than 500%.

Mernova continues to make very strong progress in the Canadian recreational market. The three most recently secured purchase orders will contribute to Creso Pharma's growing revenue profile and we expect additional orders to materialise in the very near term. We are proud to announce that Mernova has been chosen to become part of a very select group of licensed producers with cannabis products for sale in the Yukon. This is a major achievement for us, and we expect growth to continue across Canada and, with our pending entry into Ontario, Canada's largest recreational market, we expect rapid growth to continue.Mernova Managing Director, Jack Yu

Chief among them was commentary from the company's upper management concerning the US House of Representatives recent vote in favour of decriminalizing cannabis, along with the UN's decision to reclassify the drug as a less dangerous controlled substance.

The UN voted on the issue earlier this month, after a host of recommendations were tabled by the World Health Organization (WHO).

As a result, the drug scheduling for cannabis will now be shifted from Schedule IV—which is the most dangerous and restricted category—to Schedule I, the least restrictive designation.

 "The UN ruling to reclassify cannabis is a landmark decision and paves the way for the relaxing of cannabis drug classifications in large markets across the world," Creso Co-founder and Director Boaz Wachtel said.

"The result of this vote follows 60 years of status quo, three years of scientific review by the world's leading health organisations, two years of diplomatic discussions and considerable lobbying from NGOs."

"I am very confident that this decision will unlock a number of near-term opportunities for Creso Pharma, and I look forward to working with the Board and management to unlock further value for shareholders."

The market's buying frenzy was heightened even further when Creso Pharma subsequently announced this week that it expects the US House of Representatives recent vote on decriminalizing cannabis to have a material effect on the company's future revenue.

And it's not hard to see why, as the company already has substantial operations located in North America, paving the way for it to push further into what has become the largest recreational and medicinal cannabis market in the world.

In fact, Creso Pharma estimates that the US cannabis market could be worth as much as $130 billion by 2024, which has prompted the company to pursue multiple near-term opportunities aimed at establishing its presence in the American consumer space.

According to Creso Pharma Co-Founder and Director, Boaz Watchel, the potential decriminalization of cannabis by the US could generate significant growth opportunities for the company. 

"This is a historic ruling that has the ability to create significant growth opportunities in our burgeoning industry. It follows similar regulatory shifts in the European Union and from the United Nations that highlight public acceptance for cannabis and CBD-derived products is at an all-time high," Watchel said.

"Creso is very well positioned to capitalise on opportunities arising from the market in the USA, including expanding distribution of its existing cannabis products through the scale up its operations in Canada and Switzerland."

"As a listed vehicle with access to capital, Creso is also an attractive partner for merger and acquisition opportunities, and, following the appointment of Canopy Growth Founder, Bruce Linton to Creso earlier this year, the company looks forward to exploring such opportunities for the benefit of its shareholders."

Disclaimer: Past performance is not an indicator of future performance.

MGC Pharmaceuticals

MGC Pharmaceuticals (ASX:MXC) found itself in a similar position to Creso Pharma this week, after its stock price experienced a meteoric rise on the back of several positive announcements, before eventually falling back to 0.034 by close of trading Friday.

The company initially sent its share price climbing after releasing an update on the Phase II clinical trial for its "cytokine storm" targeting drug, ArtemiC, which has been developed to assist the recovery of patients affected by coronavirus.

Our Company continues to progress initiatives designed to fast-track pathways to market ahead of the Phase II results for ArtemiC, in order to be in a position to be responsive to potential market demand.MGC Pharma Co-Founder and Managing Director, Roby Zomer

Preliminary data from MGC Pharma's clinical trials have already demonstrated that ArtemiC has met all primary end points for safety and efficacy, as well as the FDA's primary endpoint of sustained clinical recovery for COVID-19 patients.

MGC Pharmaceuticals also confirmed in an official statement that, "in anticipation of the trial results, the company is working on the CMC (Chemistry, Manufacturing and Controls) which is part of the registration document of medicine for the reclassification of ArtemiC from a pharmaceutical product to an Investigation Medicinal Product (IMP)."

"The reclassification of ArtemiC to an IMP will then come within the Botanical Drug bracket. Upon completion of the trial and the release of positive results, the production of ArtemiC will move to MGC Pharma's GMP Certified production facility in Slovenia."

"The company expects to rapidly advanced discussions on a commercial scale for ArtemiC supply agreements on publication of data which determine the trial a success."

Additionally, stock in MGC Pharma reached a mid-week high of 0.041 on the same day news broke that the company had successfully completed the sale of 50,696,634 fully paid ordinary shares, pursuant to an Unmarketable Parcel Sale Facility (UMP Facility) that was previously announced to shareholders.

Under the UMP Facility, MGC Pharma arranged for the sale of the unmarketable parcels for a total 5,067 shareholders through an independent equity broker.

The revenue generated by the sale of these proceeds will then subsequently be distributed to each UMP Facility shareholder on a pro-rata basis, which is expected to take roughly 1-2 weeks.

"The board is working to complete the share sale process under the facility and distribute the funds to UMP holders as soon as practical and operating in compliance with the rules of the facility," the company stated.

"MGC Pharma confirms its shareholder base has now been reduced by 5,067 shareholders. This will significantly reduce the company's administrative and corporate costs moving forward."

Disclaimer: Past performance is not an indicator of future performance.

Incannex Healthcare  

Stock in Incannex Healthcare (ASX:IHL) started the week on an early high—following the Tuesday announcement that it had partnered with Monash University for a psilocybin study targeting anxiety disorders—before entering a moderate downward slope and then subsequently recovering, reaching 0.18 per share by close of trading Friday.

News of the world-first clinical study—which will see 72 patients recruited from across Australia—caused the stock to experience a 3 cent boost by midday Tuesday.

This trial, and the associated partnership between IHL and Monash University, represents a major leap forward for psychedelic research and development in Australia and will have a substantial impact on the field globally. I'm confident that we will conduct a highly rigorous, patient focused, world-class trial to assess the safety and efficacy of this treatment approach for people dealing with severe anxiety.Monash University Research Fellow and Trial Lead, Paul Liknaitzky

By 10 November stock in the company would subsequently sink by 2.5 cents, before shares managed to bounce back again, eventually closing Friday up 24% on the previous week's high.

Late last month the company also drew significant attention when it entered into a temporary trading halt, with the intention of releasing a market update containing, "results of an in vivo study relevant to the development of IHL-675A and its corresponding FDA regulatory strategy."

The in vivo study represents the final stage of a four-part preclinical process for Incannex Healthcare, with previous trials having demonstrated that its drug IHL-675A demonstrated substantial efficacy in limiting the body's ability to manufacture inflammatory cytokines.

In fact, the drug proved so effective that it actually managed to exceed cannabidiol in this area, outperforming CBD's reduction in cytokine production by between 109% and 767%.

Additionally, the company also recently announced that it had brought on the assistance of corporate consultancy firm, Canary Capital, in exchange for 10 million options at a strike price of 0.15 each, along with a further 10 million options at 0.25 per share.

The two companies will work together to "create value through long-term strategic investments", which should ensure that investor confidence remains strong.

Disclaimer: Past performance is not an indicator of future performance.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.