Rising High: Exclusive talk with REIT Healing Realty Trust

In this edition of “Rising High,” The Fly conducted an exclusive interview with Cody Shandraw, President of Healing Realty Trust, a real estate investment company focused on the evolution and infrastructure of behavioral health treatments. Here are some highlights:

CLINIC-FOCUSED REAL ESTATE INVESTING: Healing Realty Trust invests in real estate across the United States, including psychedelic and alternative therapy centers, medical buildings and offices, behavioral health facilities, and therapy and rehabilitation services. The company was formed to grow a clinic-focused real estate portfolio catered to wellness, with a focus on the mental, behavioral, and physical health markets. “I started a venture capital fund back in 2019, specifically dedicated towards mental and behavioral health treatments,” Shandraw said. “We looked at everything from drug development in the psychedelic space to operating clinics and also some technology. There were really two defining factors that caused the creation of the company.”

He said the first was the hindrance of Spravato, a prescription medicine for treatment-resistant depression and depressive symptoms in adults with major depressive disorder, due to the lack of clinical infrastructure. “Spravato is now a blockbuster drug because it went from having just under a hundred clinics in the country offering the treatment to 2,700 clinics,” the company president said. “Number two was a discussion at a dinner with Rick Doblin, President of the Multidisciplinary Association for Psychedelic Studies. In talking about the need for the clinical infrastructure to treat just 1.1M people, he said there were around 16,000 clinics that needed to be built or renovated for that to happen. That was really the driving force behind the formation of the REIT.”

He added HRT has a competitive edge through the unique skill set of its management team. “Not only from the psychedelic space and how those clinics run and operate but also on the real estate side,” Shandraw said. “Our COO, Daniel Carcillo, owned and operated three clinics in the Chicago area and I invested in more than a dozen of them across North America. Then on the real estate side, we just have a rockstar team.”

He noted Tyler Zakovich, has managed over $1B in real estate throughout his career, and board member and Chair of the Investment Committee, David Kivitz, developed a portfolio of over $300M of real estate in California after the 2008 financial crisis and was responsible for over $2b of real estate investments in his prior investment roles. “Joe Caltabiano, our CEO, was at Guaranteed Rate when that company was doing $100M and grew to the third largest mortgage company in the country,” he said. “We really meld the experience of cutting-edge therapies that are coming online with traditional real estate expertise.”

CEO APPOINTMENT: In November, HRT appointed Caltabiano as CEO and Chairman of the Board. “Joe, outside of being an amazing human being, had a very personal connection to leading edge therapies,” Shandraw said. “Joe had leukemia when he was young, which roughed him into a situation where he has always been looking at the cutting-edge next generation of therapy. He was a very early adopter to the medicinal cannabis market and started the multi-billion-dollar cannabis company Cresco Laboratories (CRLBF).”

Caltabiano invested in HRT’s seed round before it was even really a company, he said and became the largest investor inside the company outside of Shandraw. “I asked him to take a board seat and after a few months of seeing how helpful and knowledgeable he was on the space, the team came together and asked him to be the CEO,” Shandraw said. “He really has a special eye for those high-growth industries and that made it an attractive proposition to have him on board and join the team from an executive standpoint. Growth-wise, we are targeting a $1B real estate portfolio in the next 3-5 years.”

PARTNERSHIP ADVANTAGES: HRT employs precise data points via an exclusive relationship with HealingMaps to help well-qualified tenants identify and expand into the most attractive zones of opportunity for their practices. Shandraw is the largest investor inside of HealingMaps and serves as chairman of the board. “I invested in the company in 2021, it was immediately attractive,” he said. “I had watched the growth of WeedMaps and how that company evolved. You could see where all the medical marijuana doctors were, where people were searching not only for medical marijuana to buy but also where to get these prescriptions, and you understood the geospatial components. You could sit down and understand per city, per county, per state, exactly how many doctors, how many patients, how many dispensaries there were and you could start to look from a data visualization standpoint and see where the holes were in the market.”

The company president said he was not able to invest in WeedMaps early on, so when the HealingMaps opportunity came he was very interested. “It’s important being able to understand that clinic landscape, especially as this industry is within its infancy, and being able to understand which markets have saturation and which ones need it,” he said. “The data is able to influence our decisions on where we are looking for properties and help physicians in those areas understand their market and the competitive landscape around them. Being able to use that data to sit down with our tenants and show them, this is what we’re seeing, and this is where we think you should be building, is one of the real ingredients in the secret sauce that we have that is going to separate us from everybody else.”

The company also has a partnership with Numinus (NUMIF), that supports clinicians with turnkey clinic solutions. “I can’t speak highly enough about CEO Payton Nyquvest and COO Michael Tan,” Shandraw said. “They have really been at the forefront of getting the training and the protocol aspect of these clinics up and going. If we have a tenant that is working in an existing behavioral health infrastructure type of system, perhaps an eating disorder clinic, 18% of this company’s patients may suffer from a post-traumatic stress disorder diagnosis and that traumatic event is what onset their eating disorder.”

This demonstrates the importance of the Numinus relationship, he said, because if an operator that’s running eating disorder clinics wants to set up a ketamine or MDMA practice, once it’s approved by the FDA, HRT can introduce them to Numinus. “Numinus has a licensing platform where they will give them A to Z infrastructure, enabling them to bring on these therapies,” Shandraw said. “Everything from the training to the billing to how to set up their rooms to make the patients feel more comfortable. It really gives our tenants access to a turnkey solution for these new therapies.”

MAPS NDA: The MAPS Public Benefit Corporation recently submitted a New Drug Application to the FDA for MDMA-assisted therapy for PTSD. “This is obviously a giant moment for the psychedelic industry as a whole,” the company president said. “This is showing that through decades of dedication, hundreds of millions of dollars of donation and towards the end some investment dollars, it is possible to get these new drugs and these new chemical entities that mimic some of the classic properties of psychedelics. This can be done.”

He added he believes the conversation around MDMA and the MAPS protocols have not focused enough on how the therapy may be the most important part. “You see the correlating factors of the talk therapy that goes along with it,” Shandraw said. “Knowing how successful these trials were and how amazing the results were, I think there is going to be a monumental shift in how some mental and behavioral health indications are treated. Now you may have drugmakers who are going to start looking at including therapy. This has really turned the current model upside down. That human element of the therapy might be one of the most important pieces of the success story.”

SCHEDULING: Several psychedelics are listed as Schedule I drugs under the Controlled Substances Act, including MDMA and psilocybin, however Shandraw said he believes the molecules will have to be rescheduled. “The DEA is going to have to move MDMA out, because a Schedule I drug has no medicinal value,” he said. “Obviously that has been proven to not be true with MDMA. As these drugs become approved and there is safety and efficacy data of these treatments working, then of course they will be rescheduled.”

FDA DRAFT GUIDANCE: In June, the FDA published its first draft guidance on clinical trials with psychedelic drugs highlighting fundamental considerations for researchers investigating the use of these drugs for potential treatment of medical conditions. “It shows that the FDA is watching,” the company president said. “They’ve seen last year, one of the highest or maybe the highest segment of new drug applications for clinical trials in the psychedelic field. Billions of dollars have poured into the industry, and I see them as setting the baseline and boundaries of what the expectations are, especially as multibillions of dollars are now being pumped into these trials.”

CHALLENGES: When asked about the largest hurdles facing the psychedelic space, Shandraw pointed to the high expenses of the industry as well as the lack of real estate infrastructure. “It costs hundreds of millions of dollars to bring these drugs through clinical trials,” he said. “And when I look at the actual infrastructure of where these medicines are going to be approved and used, I’m a little nervous that maybe the people I hoped would have been treated in the first 24 or 36 months, are not going to be what everybody’s expectations are.”

He said if Spravato, a drug with a shorter duration experience, took five years to build up, the ramp up for clinics with the ability to have patients in for four to eight hours, is going to take a “monumental” effort. “Competition is a good thing,” he said. “I want other companies to be able to join us in the fight, chip in and get these things together.”

When asked about the lack of infrastructure in the sector, the company president noted that $2.7B has come into the space, of which only $257M has been directed into the clinical infrastructure side. “I saw that gap in the market very early on and knew it had to be addressed for this to become commercially viable and successful from a treatment standpoint,” he said. “Why do I think it has been underserved? The sophistication from an investment level maybe wasn’t there early on and that need was not truly understood. And any time a new therapy has come online that has required its own space, the real estate has kind of been a late follower.”

Most traditional investors, especially in real estate, are very conservative, Shandraw said. “The idea of them dumping hundreds of millions of dollars into an industry that is not approved yet is scary for some people, understandably so,” he said. “But the first movers are going to have a tremendous advantage just because of nobody else doing it.”

OPPORTUNITIES: As the psychedelic industry develops and matures, the company president said he is excited HRT has the liquidity to continue to work with doctors, therapists and practitioners to help expand the clinical footprint. “There are a lot of doctors right now looking to free up cash for multiple reasons, whether its continuing training or looking to sell their practices to other operators as they age out,” he said. “Helping find buildings that are currently offering behavioral health treatment options and giving opportunities to the doctors we’re working with to see if their patients will fit are two really great opportunities.”

HRT also has an advantage from an investment standpoint, he said, as those interested are able to invest in a company that has a brand new book of business bought at a time when prices were depreciating across the country. “Overall, industry-wide for the greater psychedelics side, hopefully an approval happens in August or September next year for MDMA,” Shandraw said. “Then you’re going to see a giant flush of money come back into the space where these guys have been struggling over the last 18 to 24 months. And from an investment standpoint, I’m excited because while MDMA is great, we’re talking one behavioral health indication, PTSD. The great thing about the psychedelic space is you have all these indications, some with multi-billion-dollar addressable markets, that scale the last couple of decades from a drug development standpoint. I’m just very excited from a scientific perspective that we’re hopefully going to see a lot of these indications tackled with some of these new drugs.”

He added treatments for these indications are critical, citing foundations that have been doing a lot of work on the sidelines in psychedelics. “First and foremost is the No Fallen Heroes Foundation, a 501(c)(3) nonprofit started by a Navy fighter pilot, who had terrible PTSD after he got out,” Shandraw said. “His best friend, squad mate and best man at his wedding ended up committing suicide, so he started this foundation to help veterans heal with psychedelic medicine.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), Awakn Life Sciences (AWKNF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).