Debra BorchardtViridian Capital Advisors has tried to tackle valuation metrics for companies in the psychedelic industry, despite many having no revenue to speak of. Last week, Viridian looked at five companies in the Viridian Value Tracker database with market caps between $10 million and $100 million to get baseline valuation metrics for the Numinus Wellness (NUMI: TSX)(NUMIF: OTCQX) $4.45M bought deal public offering that closed this week.
Viridian noted that Numinus trades at approximately 3.1x market to book, which matches the group’s median. The weekly report wrote, “Numious and Red Light Holland (TRUFF: OTCQB) are the only two group members with any significant revenue have any considerable revenue. Numinus trades around 1.0x annualized revenues, while Red Light Holland trades closer to 1.9x.”
Green Market Report wrote that Numinus Wellness agreed to raise $6 million through a bought deal with Eight Capital and a syndicate that includes Stifel GMP. Under the terms of the agreement, the syndicate will purchase 50 million units of Numinus for $0.12 per unit. The agreement involves units comprising one common share and one warrant, granting the right to purchase an additional share at $0.18 over the next 24 months. It also includes an over-allotment option, allowing the purchase of up to 15% more units, potentially increasing the total proceeds. According to the Numinus, the proceeds from the offering are intended for working capital and general corporate purposes.
Viridian noted in its report that one of the drags on the Numinus valuation is its poor liquidity. The report stated, “Its free cash flow adjusted current ratio of .26x indicates that this week’s financing was insufficient to fund the company through the year and will likely need additional financing rounds. MAPS and Integrated VC led this week’s round, which bodes well for the company’s ability to attract more financing.”
Psychedelic ETFs
A quick review of the psychedelic industry ETFs demonstrates the headwinds that have faced psychedelic stocks. The group has been in a two year bear market, not unlike its cannabis peers. The Horizons Psychedelic Stock Index (PSYK) has only recently posted some valuation gains. The Index was up by 14% year-to-date, but down 17% for the past year and down 44% for the past three years. Horizons announced in January that it was terminating the ETF and it would be closed on March 28.
The Advisorshares Psychedelics ETF (PSIL) year-to-date is up only .96% and down 33% for the last year. it is down 55% since inception, which was 2021. The portfolio manager said at the end of the fourth quarter, “During the quarter, Incannex Healthcare Inc. (IXHL) experienced an impressive increase of 314.29%, NRX Pharmaceuticals Inc. (NRXP) showed a notable gain of 60.22%, and Intra-Cellular Therapies Inc. (ITCI) recorded a positive growth of 36.45%. On the other hand, the laggards in the portfolio included Seelos Therapeutics Inc. (SEEL) with a decline of -76.06%, Lucy Scientific Discovery Inc. (LSDI) down -55.08%, and GH Research (GHRS) down -43.74% for the fourth quarter.”
These were the only pure-play psychedelic drug ETFs on the market. There are two additional ETFs; the Defiance Next Gen Altered Experience ETF (NYSE: PSY) can also hold cannabis stocks and the Elemental Advisors run PSYK ETF (NYSE: PSYK) can also hold neurology biotech companies.
One comment
Samuel Douglas
February 21, 2024 at 4:44 pm
I’d love to see more of these discussions link back to actual reality of what these companies are betting on in terms of potential markets. Literally, how much of their products do they expect to sell, and when do they expect to start selling them?