Let the good times roll!

Larger public companies in the psychedelic drug space have racked up spectacular gains since the Compass Pathways (US:CMPS) IPO apart from Compass itself.

 It was a game-changer for the sector. The numbers speak for themselves.

Industry leaders take off

Daily trading volumes for MindMed have been practically off the charts, often in excess of 20 million shares (combined U.S. and Canadian trading).

Will MindMed rally another 743% over the next 11 weeks? Unlikely.

Traders take profits. This begs the question, where should these traders be rotating their MMED profits – as they look for the next multi-bagger opportunity in psychedelic stocks?

They could funnel profits into some of the other leaders that have also had big runs. But are those really the best value propositions at present?

Initially, this IPO-driven rally extended across the spectrum of psychedelic stocks. However, in recent weeks the pattern has changed. While a few public companies have generated big gains, most of the next tier of pubcos have been moving sideways.

Rotation opportunity

Have these smaller companies been standing still? Hardly. Case in point: Mind Cure Health (CAN: MCUR / US: MCURF).

Over just the past month, Mind Cure has:

• Announced a new CEO (the first female CEO of a public psychedelics company)
• Announced a new Chief Science Officer
• Secured a new OTC listing,
• Closed on an oversubscribed private placement
• Provided guidance on its psychedelic drug R&D program

And all those moves have come after Mind Cure had initially led the way in the Compass IPO rally, rising from its own IPO price of CAD$0.20 to CAD$0.70 in its first week of public trading.

Building a base. Or simply overlooked by investors?

Even more recently, on December 10th Mind Cure has announced that it is entering the psychedelics-assisted treatment market. The Company has acquired a mental health therapy clinic, located in Kelowna, British Columbia.

The clinic will offer both ketamine-assisted therapy (already legal in Canada) and psilocybin-assisted therapy -- through accessing Health Canada's Section 56 exemptions for psilocybin use.

Mind Cure sees this as the starting point for developing a network of psychedelic-assisted clinics in Canada.

CEO Kelsey Ramsden supplied further details.

"This first Mind Cure Health Center will also act as a training hub as we advance our training model for therapists who want to offer psychedelic-assisted therapy in their clinics, or who want to better understand the care offered by Mind Cure so that they can feel confident referring patients.

Kelowna is a logical first location for a Mind Cure Health Center, both because of its proximity to Vancouver and Calgary, International Airports, as well as its growing local population and reputation as a destination city."

Mind Cure doesn’t have the industry-leading R&D portfolio of MindMed. It’s not already cultivating psilocybe mushrooms like Numinus.

But at CAD$0.67 MCUR’s market cap is a mere CAD$36 million. That’s less than 3% of MindMed’s ~CAD$1.2 billion market cap. And just over one-quarter of Numinus’s market cap (CAD$137 million).

One way or another, smaller companies like Mind Cure can be expected to close this valuation gap. Retail investors do their due diligence. They see the value opportunities with some of these overlooked psychedelic stocks.

But what if they don’t?

M&A flurry coming soon?

What if retail investors in psychedelic stocks suddenly develop ‘NASDAQ Large-Cap Syndrome’? They become blinded to any companies except the biggest players and simply chase momentum.

Then the smaller cap players will generate gains via a different route: M&A activity.

If the Big Fish in psychedelics keep getting larger and larger while the Smaller Fish go sideways, what happens next? The Big Fish go shopping.

If retail investors leave these next-tier companies to underbid, larger players will take advantage of this opportunity.

Buy into these smaller players today as attractive value propositions. Or, buy into these companies as M&A targets.

Roughly $400 million in fresh capital has flooded into the psychedelic drug sector via public financings and private equity rounds in just the last 3 months. There is clearly enough institutional funding entering this sector to power large gains among more than just a handful of companies.

Almost certainly, there is still more money to be made with the industry leaders. However, for more aggressive investors seeking greater upside potential, rotating some profits into the smaller players looks like a winning strategy.