Why Kevin O'Leary Won't Invest In Cannabis

This is a replay of Jason Raznick's interview with Kevin O'Leary at the Benzinga Pyschedelics Conference.

Jason and Kevin talk about:

• Psychedelics as an investment opportunity
• Why Cannabis Industry Attracts 'Zero' Institutional Dollars
• The Most Successful investments

Hosts:

Jason Raznick

Twitter: https://twitter.com/jasonraznick

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Transcript:

BZ: I want to introduce the number-one shark Mr. Wonderful. Kevin O'Leary. When did you first get into the psychedelic space?

3 years ago. I was here and a young guy came to me and said, look, I want you to give me a few million bucks to invest in psychedelics.

I said, are you out of your mind? That's an illegal substance.He said, no, I want to do FDA trials with it. And it was a very fascinating conversation because at that time everybody was trying to raise money for Bitcoin. It was very crypto oriented and I really got interested and I put a couple of guys with him to do some diligence.

And Alex one of the guys that works with me, Alex rarely gets excited about anything. He's seen everything. He's just came back and said listen we got to own this thing. The potential here is huge. And he was right. The addressable markets are in the hundreds of billions of dollars.

BZ: And so where is Mindmed right now?

K: When I index a sector, I try and mitigate my risk based on trials. In biotech medicine, the outcomes are unknown. So it's very binary. You can chase a molecule for 10 years and you in stage three lose.

And so you have to have multiple trials. I'm overweight MindMed, but I also have exposure to Compass. They're all doing things slightly differently, but they're all in stage two. And The minute one of them gets to stage three on any medicine, you're going to lift all the tides, so you want multiple exposure.

BZ: How did you decide to get into psychedelics?

K:How many times in your investment life, do you get to position yourself in a brand new sector?

A completely brand new sector? Never is the answer. You've once in a lifetime, if you're lucky. And this sector, and I'm not talking about cannabis, right? And I'm talking about psychedelics as medicine, FDA approved trials, non recreational use. Remember what happened back in the early sixties, the whole movement overdosing LSD caused this to be elevated to a narcotic and put aside, even though there's lots of promising evidence that micro-dosing, it could have some good natural attributes.

In terms of helping people with addiction, opioid addiction, alcoholism, anxiety, all of these different massive markets. It was ignored. And then we've tried all these other drugs like pumping kids full Ritalin and all this garbage. And we haven't explored this opportunity. And I think now we are.

And so for me, it's okay. There's been nothing new for 30 years in mental health. Other than just drugging people with more drugs. This looks more interesting. Let's put some dollars aside for this.

BZ: Are you invested in cannabis companies?

K: Let's talk about what cannabis is. Cannabis is a narcotic and that puts it in a difficult place for institutional investors.

If you have two states beside each other, one has legalized cannabis and the other hasn't and you are a shareholder. Somebody takes it across the border. and now you have aided and embedded transferring a narcotic that's punished by about 23 years in jail. I'm not that interested in that outcome for me.

Why don't we just get it off the narcotic list?

And so I represent institutional capital. We're always trying to put money to work but there isn't a dime of institutional money in cannabis industry.

Recreational cannabis is great, but it's a nothing burger compared to what this would be if it was a medicine and the potential of THC in small amounts or medicinal amounts, be FDA trials, and then approved as a drug that would have been interesting for institutions. And I think frankly, and I look at markets like Ontario, as you mentioned, the most advanced market. That business sucks. They don't allow them to brand anything. So the people in Ontario simply buy it from their dealers at a 30% discount and nothing's changed and it's a miserable business. So that's not a great investment at all. And the PEs of those stocks have been crushed.

You can't get me excited about that.

BZ: So your point is people in Ontario aren't going to the stores as much. They're going right to the direct source. Their dealers basically?

K: Now, either you arrest all the dealers and throw them in jail, like we've been doing forever, except that's a problem now because it's legal. So now you have to figure out the distribution channels in Canada, they don't allow branding. So THC is THC, whether it's an, a gummy or an edible or you're buying it in smokable.

There's no differentiation. So the people that are making that are selling a commodity and their margins are getting crushed. I don't find any of this very exciting as an investor. I think in a conference like this industry should do some soul searching and say, how do we fix this? And you start by convincing the president to get it off the narcotic list.

And you bring in billions of dollars into it for both medicinal and recreational. After you get it off the narcotic list. That's cannabis. That's not the problem with the psychedelics industry, it still can attract institutional capital.

BZ: When is big pharma going to get in the psychedelic space?

I think big pharma is starting to look at it because you're trying to figure out outcomes on massive addressable markets. And the way I view it is this is a personal opinion, but I look at this market, all the companies are going to to have to merge because they need each other and another $200 million.

By the time they get this to a medicine, that's about a billion bucks. They've got a raise it's much better if they combined all these trials together. In my view, these companies all have their own management. I know them all. I, we talked about this two years ago. I said, guys, there's so much still to be raised here, but so much potential.

We could get strategic in this thing. Let's merge them all together. That's not how they viewed it. So I own stock in all of them.

BZ: You think there is gonna be one winner or you might maybe a big merger of all three? Do we have some breaking news here?

K: No you've got the LSD crowd, the microdosing crowd and a lot of skepticism around that, but a lot of optimism too, depending on who you talk to, you've got the psilocybin crowd, then you've got the alternative molecule where you're modifying either of those, each trying to address different afflictions around mental health.

There's a lot of anecdotal information coming out of the west coast in the programming field, even though it's illegal, they're microdosing LSD, and there, which I don't endorse, but it's obviously got the research crowd really interested in understanding how this works and that's why those clinical trials are so important, but psilocybin also has potential as well.

Plus there's the whole counseling market where you take these drugs in addition to it, to a counselor. So there's a lot of different use cases to this thing, but I'm far more constructive on psychedelics for institutional capital than I am for cannabis, for reasons I just detailed, don't shoot the messenger.

Everybody was so excited about. Those stocks have come down 80% in PE since this whole thing started.

BZ: What's your best business?

K: Here's what I've learned about this whole shark tank thing. Somebody walks out in the carpet. I've never seen them before we give them a million dollars. We have no idea what the outcome's going to be.

We think we've got a winner, but we don't know. And then two years later, some ridiculous product that should have gone to zero ends up selling for a hundred million dollars. And so I have a different view about it now.

A woman walks out on the carpet. Jesus. You take a swab and you stick it in your cat's orifice and you send it to me and I give you a DNA profile of when fluffy is going to die. And I thought that is so stupid. I can't even imagine the test kits are $29 and you can get a new cat for $5. But I invested in any ways because she had such a great track record as an honorable. During the pandemic all of the110 million cats in America got something stuck up their rear end because that business has exploded and I was wrong, but I own a nice chunk of it. So I'm pretty happy.

BZ: How many investments have you done?

K: So you can take a product. The number one reason companies go to business and venture is they run out of dollars to acquire customers. They go bankrupt advertising, but when you're on shark tank, you acquire customers for free. So you can take a marginal business and all of a sudden it's profitable and shark tank because it's in syndication and perpetuity.

So we make a lot of money on things. I don't know if you saw the recent episode, banana loca, you So you can now send a banana in your kid's lunchbox filled with peanut butter, but unpeeled, how does that work? You stick a catheter up a banana and then press peanut butter into it. I thought what a stupid idea and Alex backstage said I have to own that.

And all of a sudden, all the big banana companies are calling us saying, Hey, can we do a deal? The stupidest idea I've ever seen it's crazy.

Lori taught me something. Stupid things made of plastic sell a lot.

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