By Risha Groner
It hasn’t been long since cannabis’s explosive growth created a fire investment trend and established itself as a serious new market. This long-anticipated entrance came about due to a combination of factors including widespread legalization, medically-backed research, and increased consumer education. Can we expect a similar path for psychedelic investment?
Today, the loosely related though often compared medicinal psychedelics sector is having its own emergence into the limelight. Psychoactive medicines like MDMA, ketamine, psilocybin, and ayahuasca are establishing themselves as highly effective mental health treatment vehicles, and a commercial infrastructure is materializing around them.
2020 is a hallmark year for psychedelics, drawing the attention and capital of high-profile investors such as Kevin “Mr. Wonderful” O’Leary (Shark Tank) and Peter Thiel (PayPal, Palantir). In September 2020, Compass Pathways became the first psychedelics company to IPO on NASDAQ. Canadian company MindMed was the first to debut on the Canadian Stock Exchange.
As researchers carry out clinical trials that support the use of these compounds as an alternative to pharmaceuticals or to confront societal issues substance abuse, investors are seeking to understand the decisions they might face in psychedelic investment. While similarities exist between cannabis and psychedelics, there are marked differences to note when considering this speculative but high-potential market.
Two fundamentally different consumer delivery models
In places where cannabis is legal in the United States, customers must simply show a medical prescription (for medical use) or a proof-of-age ID (for adult use). They are permitted to purchase their own products for at-home use. Psychedelic medicines, on the other hand, are carefully administered in a clinical “set and setting.” This involves thorough preparation, close supervision in a safe, controlled environment, and post-session integration with trained therapists.
This delivery method requires a network of ketamine clinics, therapists, and practitioners in a manner entirely different from the retail-style dispensaries of the cannabis world. Treatment goes much further than the drug itself. Pioneering psychedelics companies are currently working on forging effective roads toward scalable models. Can practitioners deliver these treatments in an impactful, accessible, and cost-effective way?
Cannabis is legal in many places. Psychedelics are not (yet).
While cannabis remains a federally classified Schedule 1 substance, it is now legal for medical use in 33 US states, for adult use in 11 states, and decriminalized in 16 states. Psychedelics, on the other hand, are still a long way from the state and local legislative status of cannabis. Only certain cities in Colorado and California – and encouragingly, the State of Oregon – have decriminalized psilocybin. Nevertheless, as witnessed by the cannabis industry, change can happen quickly and be followed by fast growth.
Building infrastructure while waiting for legalization is possible in both industries
Even as psychedelics remain illegal, savvy entrepreneurs are paving the way for widespread legalization by building out infrastructure. Cannabis entrepreneurs embraced the use of non-psychoactive CBD to create a host of wellness products across food, beauty, and health supplements. “Functional mushrooms” today present a similar cultural introduction, blended into coffee, chocolates, tinctures and more. The lesson: build out the supply chain and logistics necessary now to scale for psychedelic medicinal and even personal use. Doing so will position companies at exactly the right place during this critical research and legislation phase.
Cannabis and psychedelics are at different research stages
Psychedelic research has come a long way since the pre-prohibition LSD trials. Today, health professionals, researchers, and even the FDA acknowledge the benefits of psychedelic-assisted therapies. Nonetheless, compared to the wealth of cannabis research data, clinical psychedelics is relatively young. As a result, it’s anyone’s guess when widespread regulatory approval will allow for mainstreaming by practitioners and patients.
Revenue from psychedelics is a long way away
Many cannabis companies are already highly profitable and have been for years. In contrast, psychedelics companies remain in the research phase, without much actual revenue for now. The market remains fairly speculative, but based on the potential market of people seeking to heal from depression, anxiety, PTSD, and addiction, it’s clear that psychedelic investment presents an enormous opportunity.
Revenue models vary too, as researchers determine which treatments will be delivered as a single event, an ongoing series, or something in the middle. This departure from the profitably chronic flow of drugs – the bread and butter of conventional pharmaceuticals – is one of the major appeals of psychedelics. There’s also the notion of a retail psilocybin or LSD microdosing market. Microdosing is still in research infancy, but may present return potential down the line.
Revenue projections vary as the business models develop
While some might consider psychedelic treatments a simple replacement for mental health pharmaceutical drugs, the differences are stark. According to Compass Pathways co-founder Lars Wilde, entrepreneurs in this space are not simply chasing bottom line revenue, but aim to enable an overall healthier society. “Everybody deserves a healthy mind,” said Wilde, adding that while psychedelics may not replace pharmaceuticals entirely, they will have an opportunity to be utilized “as a mental health vaccine”. The financial benefits of a healthier population are measured differently than classic retail sales. Populations deeply impacted by addiction, mental health crises, and PTSD highlight the societal and monetary costs. COVID-19 is spiking these statistics, and healthcare providers, insurance companies, and municipalities are feeling the brunt.
So is psychedelic investment a worthwhile consideration?
Psychedelics present significant investment opportunity, but there is reason for caution. Entrepreneurs are careful to avoid the overhype and sell-off that ended up characterizing the cannabis industry. Typically, investors seek to calculate the potential peak sales of a projected market. In psychedelics, the research, delivery mechanisms, various revenue models, and legalities are mostly terra nova. Nevertheless, the potential impact on global health improvements and a more conscious and connected society make psychedelics an exciting space for any adventurous entrepreneur or investor.