Beyond Cannabis: 3 Stock Picks Tied to the Psychedelics Trade

Cannabis Is Overdone. Is It Time to Try Psychedelics Instead? Of course, I’m talking about the stocks and not the drugs. This is an article about investing, after all.

You see, cannabis investors have been waiting for the U.S. government to reschedule their favorite plant to Schedule III from Schedule I. This would make cannabis classified like such relatively accepted drugs as ketamine and testosterone. In other words, legal, even if you need a doctor’s approval.

While this doesn’t legalize recreational cannabis use, it gets it one step closer.

Investing in cannabis companies has been nothing but risky. The companies tend to be on the smaller side and are heavily influenced by news. Plus, they’re trading for a fraction of the price they were at in early 2021.

However, we know that TheStreet Pro’s technical analysts, like Helene Meisler, love a good base, and these stocks are basing. But does that mean they’re a buy?

Doug Kass Ditched His Cannabis Holdings

Our own Doug Kass says no. It’s not like Dougie is afraid of this industry. He’s been in and out of it 10 times over the last few years. In fact, recently, he bought shares in the AdvisorShares Pure Cannabis ETF (MSOS) on weakness and just exited the position. In Doug Kass: Why I Ditched My Cannabis Holdings Amid DOJ Rescheduling Rally, Kass takes us through his rationale, which, true to form, is contrarian.

First of all, Kass states that there is a chronic oversupply in the industry, which will keep a lid on prices. Same-store sales have been weak at the same time that new stores are coming online.

Second, investors need to read the fine print of the rescheduling announcement. As mentioned above, this only impacts the medical stuff. The recreational market still falls under Schedule I rules. Yes, it’s even more likely now that recreational sales will eventually be rescheduled, but there’s no timeline for that.

Third, follow the money. The hot money traders have already jumped in and pushed shares higher. Who’s left to buy? Not the big institutions. Kass says that there is still a long road ahead before custodian and uplisting issues are resolved, and the big money can invest. Retail traders simply don’t have the funds to push this market much higher.

There are other issues, like interstate commerce, as well as reporting and banking issues that won’t go away.

So, while the rescheduling announcement brings more clarity to the industry, the effects will be long-term. In the short term, expect profit-taking and for the stocks to settle back to lower prices.

Does this mean you should dump your cannabis stocks? Not necessarily. Just understand the risks. If you’re hoping for a quick buck, this isn’t the time to buy. If you’re in it for the long haul, you may see a payoff.

In the big run-up, Kass sold all of his cannabis holdings, except one: Glass House Brands (GLASF), which he has a small position in.

Remember, Kass is a trader. He’ll be looking for a good entry point when this industry is lower and the best way to know when Doug buys is to join TheStreet Pro.

Right now, membership in TheStreet Pro is a steal. Join us and don’t miss a move.

For now, cannabis investors might consider just sitting on the couch and relaxing while this latest rally settles out.

Psychedelics Over Cannabis

Not surprisingly, many of our subscribers have been asking about psychedelics. Again, not the drugs, but the stocks. You might say that they’ve achieved mass awareness about them.

Why now? President Trump signed an executive order to accelerate research and improve access to drugs like psilocybin and MDMA in the hopes that they will enlighten scientists seeking to find treatments for serious mental illness.

If you’re interested in similarly enlightening your portfolio, be aware that experimenting with psychedelic stocks can be dangerous. This warning comes from TheStreet Pro’s Ed Ponsi in “3 Different Ways to Play the Rally in Psychedelic Stocks.”

First of all, Ed tells us that the stocks themselves are mostly small caps that trade on low volume. Second, these are the kind of stocks that attract hot money, which can quickly turn cold when momentum dries up. You’ve gotta be early with these stocks and then know when to sell, either for a profit or to protect what’s left of your money.

Ed’s first suggestion is for investors to buy the AdvisorShares Psychedelics ETF (PSIL).

Last week, this ETF popped, trading at a multi-year high before settling down. Ed thinks this one could be a buy if it closes the gap left by last week’s jump. So, around $18.80 is where he would consider nibbling on shares. But, when/if they get there, he wouldn’t blindly buy. Rather, he’d look for clues in the price action that the selling was over.

Ed’s second suggestion is a stock with a $12 billion market cap. According to TipRanks, Neurocrine Biosciences (NBIX) is a pharmaceutical company that focuses on neurological, endocrine, and psychiatric disorders like Parkinson’s, endometriosis, and uterine fibroids. They’ve also got a drug in Phase 2 trials for schizophrenia.

Over the last 3 years, the stock has been volatile. But, for the last decade, it’s shown a nice tendency to trend upwards. Shares are down around 7% in 2026, but up 28% for the last 12 months.

The company is expected to report earnings on May 5, and TipRanks analyst consensus is bullish. Twenty-one analysts think the stock is a buy, and just two think it’s a hold.

The average target price is $182.79, about 43% above current prices.

If you’re messing around with psychedelics, you probably like a little risk. Ed’s final pick is speculative. Definium Therapeutics (DFTX), formerly known as MindMed. It’s a clinical-stage biopharmaceutical company focused on psychoplastigen drugs for the treatment of psychiatric disorders.  These drugs include LSD and ketamine.

This one’s smaller than NBIX, with a market cap of $2.3 billion. Had you bought shares a year ago, you’d be more than happy since they’ve nearly quadrupled in value over that time. They’re up 68% this year!

The 13 analysts covering the stock, though, think there’s plenty more upside to be had.

All 13 rate the stock a buy with the consensus target price coming in at over $39, an 85% gain from current levels. Earnings are set to be reported on May 7.

Final Thoughts

Doug Kass and Ed Ponsi agree that the regulatory environment is supportive for both of these industries. Because of that, there are solid long-term opportunities in both the cannabis and psychedelic industries. As these businesses gain further regulatory approval, it paves the way for investment from larger money managers.

In the short run, however, they’re risky. Kass isn’t a buyer of cannabis stocks here. Rather, he’s been a profit taker and would consider buying again when shares fall back to a price he is comfortable with. Ponsi feels that psychedelics offer more opportunity today. But he’d pick his points carefully, letting the prices come to him, rather than chasing to buy if the hot money shows up again.