Why Mind Medicine Gave Investors a Powerful Buzz in May

Mind Medicine (NASDAQ: MNMD), a healthcare company that's looking to develop treatments based on psychedelic compounds, was something of a sleeper stock in May. Several positive developments pushed the highly specialized enterprise's share price higher, to the point where it closed the month up almost 14% in price.

Rays of sunshine in May

The main driver of this gain was a small step forward in the decriminalization of psilocybin. That's the psychoactive compound that Mind Medicine -- or MindMed, as it's known for short -- is aiming to develop into substances that can help treat certain psychological disorders.

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That tiny movement forward came from the Connecticut House of Representatives, which in mid-May passed a bill that would drastically change the legal status of psilocybin. It now must go through a process that includes a vote in the state Senate before it can become law.

In its current form, the bill would decriminalize the substance, chiefly found in so-called "magic" mushrooms, to the point where possession of a small amount would be punishable only by a $150 fine. That's quite a shift from the current regime, in which violators can be sentenced to jail time.

The vote in the House was narrow, however, with 74 in favor versus 65 against, and Gov. Ned Lamont rejected an earlier psilocybin decriminalization bill, so this wasn't exactly a slam dunk. Still, MindMed investors saw it as a win that there's continued movement on nudging the substance toward at least a soft form of legalization.

Company management is clearly anticipating movement on the decriminalization front, whether or not the Connecticut effort is successful. Toward the end of May, the company announced it had appointed a new CFO. Brandi Roberts wasted little time in formally taking up the position several days later.

Roberts has significant experience as a CFO in various businesses in the life sciences sector, which should help boost the credibility and viability of Mind Medicine. According to the company, her experience also includes bringing her previous employer, Longboard Pharmaceuticals, to its initial public offering and later being instrumental in its sale to Denmark-based peer H. Lundbeck.

Caution warranted

Things were looking up for MindMed in May, but we should always bear in mind that as a company focused on a substance that is currently illegal throughout the U.S., it remains a very speculative investment. I like its uniqueness, and I feel that if the legal framework shifts it could do quite interesting work. But this is a stock for investors with high risk tolerance only.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.