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Trade the Burgeoning ‘Shroom Boom’ with COMPASS Pathways Stock

The idea of legally exploring psilocybin therapy as an approach to the treatment of mental health challenges was unthinkable in past generations. Today, however, COMPASS Pathways (NASDAQ:CMPS) is investigating the healing potential of psychedelics, and you can invest in this company’s bold vision through CMPS stock.

A close-up shot of hands holding a grinder with cannabis buds in the background representing aurora stock.
Source: Shutterstock

What is psilocybin, and is it even legal? We’ll get into all of that, as well as COMPASS Pathways’ approach to developing psychedelics-based treatments for conditions that sometimes aren’t solved by traditional medicines.

Just be aware that the CMPS stock initial public offering (IPO) took place in mid-September, so it’s not a stock with a lengthy history. In other words, this is definitely a speculative stock. Hence, you wouldn’t want to allocate a large portion of your portfolio towards CMPS.

For a small position, however, CMPS stock might be a worthy bet on a niche market that could eventually follow the same trajectory as cannabis. So, let’s begin with a check-up on the price action of this recently introduced stock.

A Closer Look at CMPS Stock

Because CMPS stock hasn’t been around for very long, it’s still undergoing the process of price discovery. By this, I mean that the trading community is trying to determine an appropriate price range for CMPS.

While price discovery is still in progress, traders should expect large daily price swings in CMPS stock. For instance, on the morning of Nov. 10, I witnessed CMPS plunge from $38 to $34 within a couple of hours.

At least we can say that the CMPS stock price has stabilized somewhat during its brief existence. The shares were trading at around $29 in mid-September, but the bulls kept CMPS above $30 throughout October and early November.

The daily volume for CMPS stock is typically in the hundreds of thousands. In 2021, it would be nice to see a million or more shares traded every day. If it happened with cannabis stocks, why couldn’t it happen with CMPS someday?

Let’s Talk About Mushrooms

I promised to explain what psilocybin is, so here we go. As COMPASS Pathways explains, “Psilocybin is an active ingredient in some species of mushrooms, often referred to as ‘magic mushrooms’.”

COMPASS Pathways’ primary business model is to investigate the effectiveness of psilocybin therapy for mental health disorders, and particularly treatment-resistant depression.

The company’s synthesized formulation of psilocybin is known as COMP 360. COMPASS Pathways claims that there’s research suggesting that psilocybin “could be a safe and effective medicine for patients with depression, anxiety, addiction and other mental illnesses” when administered under proper supervision.

That all sounds very promising, but there’s a major roadblock here. The Drug Enforcement Administration (DEA) still classifies psilocybin as a Schedule I drug. In other words, psilocybin evidently has “no currently accepted medical use in treatment in the United States.” And, it’s illegal on a federal level.

The Next Cannabis?

On the other hand, you could say the same exact thing about cannabis. Like psilocybin, cannabis currently has Schedule I classification in the United States.

Yet, this hasn’t stopped COMPASS Pathways from making progress with its investigation in psilocybin therapy. Earlier this year, the U.S. Patent and Trademark Office issued a patent for COMP 360 for use in a psilocybin therapy protocol for patients with treatment-resistant depression.

Furthermore, the U.S. Food and Drug Administration (FDA) granted COMPASS Pathways “Breakthrough Therapy” designation for the company’s psilocybin therapy for treatment-resistant depression. This designation is basically a green light for the company to pursue limited, specified research into psilocybin therapy.

If you’re getting a sense of deja vu, it’s probably because the story we’re telling here sounds a lot like cannabis in 2017. Understand, though, that there’s no guarantee that “magic mushrooms” will follow the same path.

Decriminalization and widespread acceptance might take a while. But if and when it does happen, COMPASS Pathways will be an early mover in this fascinating medical niche.

The Bottom Line

Psilocybin therapy is a medical field that’s still in its infancy. There’s no telling how long it might take for this type of mental health treatment to gain acceptance.

However, if you’re willing to take a chance on this largely undeveloped medical niche, a small position in CMPS stock could pay off in the long run.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/trade-the-burgeoning-shroom-boom-with-cmps-stock/.

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