How to Spot a Lemon

One word: FOMO

How to spot a lemon, or if you prefer; how not to be a sucker, or if you prefer; how to choose your psychedelic investments wisely, or if you prefer; how to blow your savings to avoid FOMO, or if you prefer; the Inverse Anna Karenina Principle, or if you prefer; how to understand the lay of the land before you make a huge little mistake.

This isn’t cannabis, son.

How to Spot a Lemon

“a lemon is a vehicle (often new) that turns out to have several manufacturing defects affecting its safety, value or utility. Any vehicle with such severe issues may be termed a lemon and, by extension, so may any product with flaws too great or severe to serve its purpose.”—Wikipedia

Everyone knows a lemon when they see one.

However, if emotions like FOMO and exuberance are running high, as they are at the moment in psychedelia, you can’t see lemons as clearly as you would otherwise.

At times of market run-ups, you don’t have to convince yourself that it’s the right decision; you have to convince yourself its the wrong decision.

There’s enough to rationalize it but then there’s the feeling in your gut, you know you shouldn’t do it.

But that FOMO tho.

These decisions are less invasive when you need a car, a home, and health insurance. These needs aren’t going away.

But if you don’t act no, opportunities to invest in psychedelia will be gone before your 5-Me0-DMT trip is over.

Here is a hypothetical scenario:

You read press releases about this company’s latest funding round, or that company’s intellectual property or this company’s applaud for Gwyneth Paltrow’s brave portrayal of MDMA therapy or Froga (frozen yoga).

So you connect with the CEO on WhatsApp, he sends you his deck and you write the check.

They have Intellectual Property, they tell you (or was it intelligent property?)

They have the best scientists and chemists, the best extracting and purifying, the best coagulating, titrating, emulsifying. (Fucking Science!)

You love science!

They have secured the funds, a warehouse, machinery, and a distributor (or was it a supplier?).

All they need is the fuel for the ship.

That’s where you come in.

You, the one who’s gonna make it all happen, you fucking stud, you.

You write the check. You hand it over. It’s done. You smoke a blunt with your new “partners.”

You’re in.

NO FOMO for you.

You may have missed cannabis, BUT YOU ARE NOT MISSING PSYCHEDELICS.

You call your mom.

Mom’s not chill.

That’s ok, she believes the propaganda. She doesn’t get it. She voted for Nixon.

She’ll understand when you buy her a house.

A few days later you text your new business partner.

What was the name of the scientists we got? What academic institute of excellence did he come from? Who was the regulator connection? What exchange was it listed on?

He’s not texting you back.

You just bought a lemon.

Perhaps our hypothetical investor got lucky with crypto or a start-up that afforded him a chance to bet on psychedelics. Perhaps he got into copywriting and found a niche, laid it on thick and came out with some cash.

Either way, he’s not an institutional investor.

The options available to him are not the ATAIs or MindMeds or Field Trips.

As institutional investors are realizing that psychedelic-based treatments could lead mental health out of the land of impotent treatments, they are jumping on board.

In order for our friend not to miss out, he’ll need to rely on efforts to decriminalize and implement sale/tax/regulation frameworks.

There’s so much energy at the moment, he can feel it, DecrimCA is gonna DO IT, OregonPSI is gonna DO IT. It’s gonna happen.

“I missed cannabis, I am NOT missing psychedelics”

There is a lot of action, everyone’s raising a fund.

Everyone’s got a Ph.D. post-doc working on the “game-changing IP.”

Everyone’s got a crypto-blockchain-value-chain-distributed-visualization-ledger-operations-intelligence-platform “powering” their…platform.

But the space our budding investor is looking at will require due diligence.

All Happy Families

Successful psychedelic companies will follow the inverse of the Anna Karenina Principle.

Leo Tolstoy’s epic Anna Karinena, a novel everyone quotes but few have read (guilty) offers a principle of family life in the first and infamous sentence:

“All happy families are alike; each unhappy family is unhappy in its own way.”

Companies can be evaluated on the inverse of this principle, namely:

“All valuable psychedelic companies create value in their own way; each lemon is just like all the other lemons”

Unfortunately, our friend does not have the means to participate in funding happy companies that have unique IP, or unique ability to address an unmet need, or defined diagnosis.

Fortunately (?) there is the possibility that the ballot initiatives and legislative measures at play could create markets where our friend’s new investment could yield a return.

All Lemons are alike

You can learn a lot about a company based on who their website is intended to serve.

The website and marketing assets that companies make public reveal who they need to attract.

Some companies need to convince regulators and tailor their copy to regulators.

Some companies seek to convince therapists/clinicians that their training is best.

And some are speaking to investors.

I am about to highlight common features I have noticed of companies that I believe are seeking investors not to ridicule or because I am anti-commerce or believe that profits have no place in healthcare.

But rather to highlight a few peculiarities that are commonly seen in order to educate the public.

There is a ton of exuberance right now about the healing potential of psychedelics and the earning potential and this creates tension.

However, unlike tulips, cryptocurrencies, and cannabis it would be a real shame if psychedelic progress halted over concerns about dubious investment schemes, bad actors, runaway exuberance that undermine the utility of plants, fungi, and molecules as agents of betterment and therapy.

So let’s explore some themes and you can make up your own mind.

There are a few common features of many companies entering the psychedelic space, they all have similar look and feel to them. These are also features of many cannabis companies, most prominently with Canadian companies.

  • The exchanges they’re listed on feature prominently (commonly exchanges in which certain information asymmetries between buyers and sellers are allowed)

  • The ‘news’ section of their sites almost exclusively includes press releases rather than earned or owned (in house) media.

  • There is little information about the products, services, and research under development.

  • Academic or institutional research is not featured.

  • Patents or patent applications are displayed prominently.

So, dear reader, if you find yourself evaluating investment opportunities, keep these things in mind and, as always buyer beware.

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