Are psychedelics investable?

Effective communication skills are essential in business and life, as highlighted in the Think Fast, Talk Smart podcast. The podcast, which has received nearly 43 million downloads and is the number one career podcast in 95 plus countries, offers valuable insights from experts on various communication topics, including managing anxiety, taking risks, and harnessing nervous energy. Meanwhile, in the financial world, JPMorgan Chase reported earnings of $2.63 a share and revenue of $31.6 billion, but faced challenges from geopolitical and economic issues, including a $902 million charge related to the Russia-Ukraine conflict and rising interest rates. These challenges could impact JPMorgan's mortgage origination business, which saw a 37% drop in mortgage originations and a 20% decrease in home lending revenue from the previous year. Despite these challenges, JPMorgan's CEO Jamie Dimon remains optimistic for the short term but is concerned about the long-term effects of these challenges. Investors should note that JPMorgan's mortgage business is not a significant part of its overall business, but the impact of rising interest rates on mortgage origination is noteworthy.

While the mortgage market, which accounted for a smaller portion of a $3 trillion dollar business, is worth keeping an eye on for its potential impact on companies like Wells Fargo, the debit and credit card sector is showing more positive signs with increasing sales and sales volume, despite inflation. Consumers seem to be eager to spend, as evidenced by the ramping up of travel schedules and rising airfare prices, even in the face of increased costs. Additionally, after several years of deleveraging, consumers may continue to spend robustly. However, the mortgage market's effect on Wells Fargo, which is more heavily exposed to home lending, remains an interesting development to watch.

Consumers have been saving more during the pandemic, leading to a significant reduction in consumer debt. However, with the economy reopening and pent-up demand, consumers are eager to spend again. Jamie Dimon, JPMorgan Chase CEO, struck an optimistic yet cautious tone in his recent remarks, acknowledging near-term challenges but expressing longer-term optimism. Banks, including JPMorgan Chase, are closely monitoring inflation, geopolitical concerns, supply chain issues, and rising interest rates, which may lead to increased reserves. At the same time, they are authorizing new share repurchase plans, reflecting confidence in the future. In other news, PayPal's CFO, John Rainey, is joining Walmart as its new CFO, highlighting the importance of the CFO role in managing a retail giant's finances and domain including financial planning, reporting, and risk management.

The role of a CFO at Walmart appears to be more than just managing finances. With the company's transition from a bricks-and-mortar retailer to an omnichannel retailer, the CFO position involves building new digital technology and financial initiatives. The recent departure of the CFO from PayPal to Walmart indicates a desire for new challenges and opportunities to build something significant in a globally important company. Walmart's focus on omnichannel retailing, including investments in advertising, metaverse, and payments, benefits from the CFO's experience in the fintech industry. The CFO's role in this context is crucial for Walmart to be present where and when consumers want them, which is a necessity in today's retail environment. Overall, it's an exciting opportunity for the new CFO to contribute to Walmart's ongoing transformation and growth.

Walmart, like many businesses, is facing challenges with labor and supply chain costs, particularly in the area of logistics and fulfillment. The company's decision to pay long haul truckers $110,000 is a response to these challenges, but it also highlights the importance of scale in meeting customer needs and creating loyalty. Meanwhile, the growing trend of investing in psychedelics for mental health is capturing the imagination of consumers and investors alike, with potential benefits for those dealing with various mental health issues. As investors, it's essential to understand the broader context of these trends and how they could impact specific companies and industries. In the case of Walmart, its ability to navigate logistics challenges and maintain its position as a low-cost option for consumers is crucial. In the psychedelics space, understanding the potential therapeutic benefits and the growing societal acceptance of mental health treatments could lead to significant opportunities for investors.

The psychedelics industry is experiencing significant growth with over 80 companies currently researching and developing psychedelic compounds, many of which are public. These companies, such as Compass Pathways, Atai Life Sciences, MindMed, and Saiban, are exploring the use of psychedelics like psilocybin for therapeutic purposes. While the FDA has shown a relatively open stance towards research on these substances, regulatory approval and legislation will be crucial for industry success and widespread adoption. The psychedelics industry shares similarities with the cannabis industry, including ongoing research into medicinal uses despite legal restrictions. However, the highly regulated nature of psychedelics, which are primarily Schedule 1 drugs, presents unique challenges. The potential for a boom-bust cycle driven by retail investor interest should also be expected. Unlike cannabis treatments, such as CBD, psychedelics' mind-altering nature significantly affects their regulatory status and distribution. Companies like GW Pharma, which received approval for a CBD-based treatment for rare epilepsy, provide a contrast in the regulatory landscape. Preparation for the ups and downs of investing in this space is essential.

The regulatory landscape for psychedelics, particularly schedule 1 substances like psilocybin and LSD, is likely to remain restrictive, making it challenging for companies to gain widespread approval and distribution. The example of Johnson & Johnson's ketamine-based drug, SPRAVATO, which is a schedule 3 substance, suggests that the government may view some psychedelics as less risky than others. However, investors should be cautious in their expectations for regulatory change, given the complexities and nuances of the psychedelics industry, as well as the challenges of conducting double-blind clinical trials and monetizing these therapies due to the inability to patent the natural compounds. Despite promising preliminary research on the potential therapeutic benefits of psilocybin for depression and anxiety, the industry faces hurdles in demonstrating the efficacy of these treatments and navigating regulatory frameworks.

Compass Pathways and other companies in the psychedelic industry are attempting to patent various aspects of their psychedelic therapy treatments, including the use of dim lighting, soft music, and therapists' certifications. This has raised questions about monetization strategies and potential conflicts with the natural availability of these substances. While there is excitement about the potential medical market for these treatments, the long time horizon and uncertainties make it a risky investment for some. The industry's future is uncertain, with potential for both medical and recreational markets, but investors should approach it with caution due to the hype and uncertainties.