The potential for psychedelics continues bringing new investors to this sector. Experts are emphasizing how much research is required before making any moves.

Expert panelists spoke at the 2020 online Psychedelic Capital event. They discussed the best methods for due diligence that they recommend to investors evaluating the psychedelics investing story.

Richard Skaife hosted the conversation. Jayashree Mitra was a partner at Zuber Lawler, Cody Shandraw, director of Ambria Capital, Jayashree Mtra was a business advisor at MNP, Mitchell Osak was then a business advisor at MNP, Michael Astone, who was then director for mergers and acquisitions at BDO Capital, and Michael Franks, a venture capital investor at the Noetic Psychedelic Fund.

Skaife is co-founding partner in the Conscious Fund. This investment group is interested in helping to advance the discussion around the new age of psychotropics.

The panel was dominated by venture capitalists, but the psychedelics industry has also entered the public market in pursuit of capital. Canadian investors can find stocks on a variety of exchanges that offer different perspectives on the emerging psychedelics sector. Learn more from the panelists.

What information should investors have about companies before they make a psychedelics investments?

Astone stated that due diligence is particularly important for industries in the beginning stages of their cycles. Astone recommended that investors look first at the reputations of those who work for these companies.

He said, "It is very important to be doing thorough due diligence in early-stage companies... When your involvement in an early-stage disruptive sector, you want to pay attention to the people."

According to the executive, investors should be able to verify the credibility of the team and the track record of management in the field.

Franks stated that he would like to see the people behind any company produce tangible results, but he needs to see science and tech to back up claims at medical facilities.

Franks stated that they are looking for people who have experience in bringing molecules on the market, going through Phase 1 or Phase 2b clinical trials, and those who can work with chemicals and molecules and raise funds.

Shandraw expressed the same "prove it is to me" style of evaluation and said he wanted to understand the capital markets of the companies he pursues.

"Often, companies that go public don't realize that there are two businesses. During the discussion, he stated that there is the public company and then the actual operations.

Due diligence in psychedelics investments requires a strong share structure

Skaife asked Osak a question about Canadian share structures. He noted that they can be very different from those in the US and Europe.

Osak initially hesitated to ask the question. However, the advisor said that share structure was an important question for both investors and those interested in the growing market for psychedelics.

He explained that the average retail investor should spend a lot of time researching companies, including their share structures, before investing any money.

Osak stated that investors often hear him say, "Don't get those preferential shares and end-up with less rights than other early stage investors."

Franks suggested that investors examine the balance sheets and assess their debt levels. This involves understanding the obligations of companies and reading through debt agreements.

Franks suggests that prospective investors in any industry ask for copies of the shareholder agreements and corporate governance bylaws to get a better understanding of the management structure.

Osak suggested three guidelines for investors: Know exactly what your money is buying, consult an advisor before investing, and examine the company's capitalization. This means looking at the ownership of company shares, as well as what type of shares each person has and what their implications from a governance standpoint.

Osak stated that he doesn't recommend investing a large amount of money in a company, but has very limited control over the money. Osak noted that voting shares could allow for other investors to have a stronger voice while investing less. The business advisor stated that you will be outsiders if you don't do your research.

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Securities Disclosure - I, Melissa Pistilli have no direct investment in any company mentioned.

By: Melissa Pistilli
Title: Due Diligence Critical for Emerging Psychedelics Space
Sourced From: investingnews.com/daily/life-science-investing/psychedelics-investing/due-diligence-critical-psychedelics-space/
Published Date: Wed, 10 Nov 2021 21:25:11 +0000

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