Are Psychedelics the Next Cannabis Investing Trend?

Some insiders say the psychedelics industry could be as much as US$5 billion annually

David Hodes, The Fresh Toast | May 5, 2020 | SmallCapPower: As the pandemic affects businesses around the world, the cannabis business situation is especially sobering.

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(The following article was originally published on thegrowthop.com on May 2, 2020)

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Canopy Growth, once the darling of the industry and a self-described “world leading” cannabis company, announced on Apr. 16 the closing of various operations in Africa, Canada, Latin America and the U.S., resulting in the loss of over half a billion dollars.

Another early cannabis industry dazzler, MedMen, “North America’s premium cannabis retailer,” ran into major management issues, firing co-founder Adam Bierman and showing huge loses in its recent 2020 financial statement.

Both of these operations were founded and run by the so-called “cannabros” who got into the industry without a clear path for profit or sustainability that some made worse. In the case of MedMen, Bierman faced many accusations of burning through earnings with extravagant purchases supporting a high-flying lifestyle.

The glow of fast bucks and sustainable profitable operations has dimmed. Cannabis stocks have been crashing hard through most of 2019, with many of the top cannabis companies in the U.S. having enough cash to continue operations just through the middle of this year — struggling through 280E tax issues (a U.S. tax rule where they can’t write off business expenses), and not yet able to fully factor in the ongoing hit from the coronavirus.

Now, there could be a new target for investors who have learned the lessons from the cannabis industry and are working to build another related industry: psychedelics.

All indications are that this could be a safer, calmer, more step-by-step investment with a substance that has been reported to have been shown to be a natural way to treat various mental health conditions and overall human wellness — just what the coronavirus has put in the spotlight.

Research suggests that psychedelics are catching on. In 2019, the Global Drug Survey collaborated with psychedelic researchers to explore the acceptability of psychedelics and other drugs such as MDMA (ecstasy or “Molly”) and ketamine in psychiatry. “We found high rates of acceptance especially among those with prior experience of using them, although fears based on myths and outdated science, were evident among psychedelic-naïve respondents,” the survey concluded. “Psychedelics are a boom business.”

Some insiders say the psychedelics industry could be as much as US$5 billion annually. “I have seen some investment groups out there who have invested $100 million in the last 12 to 24 months,” says Tim Regan, vice president of capital markets for KCSA Strategic Communications, who is focused on investor relations for their psychedelic practice.

Rick Doblin, Ph.D., is the founder and executive director of the Multidisciplinary Association for Psychedelic Studies (MAPS). Doblin is helping design and sponsor psychedelic psychotherapy drug development, and has already raised over US$70 million in donations. MAPS received U.S. Drug and Food Administration (FDA) Breakthrough Therapy Designation for MDMA-assisted psychotherapy for post-traumatic stress disorder (PTSD) with phase 3 clinical trials already underway and FDA approval expected in 2021.

And just last year, the FDA approved Spravato, or esketamine, sold by Janssen Pharmaceuticals, which is a nasal spray used for treating depression, that was also part of the FDA’s Fast Track and Breakthrough Therapy designations. It has been widely hailed as the first approved psychedelic treatment for psychiatric use.

In 2000, Johns Hopkins was granted regulatory approval to do research into psychedelics, publishing a landmark study on psilocybin in 2006, then publishing additional peer-reviewed articles and creating the Center for Psychedelic and Consciousness Research.

“Upcoming studies will determine the effectiveness of psilocybin as a new therapy for opioid addiction, Alzheimer’s disease, PTSD, post-treatment Lyme disease syndrome (formerly known as chronic Lyme disease), anorexia nervosa and alcohol use in people with major depression. The researchers hope to create precision medicine treatments tailored to the specific needs of individual patients,” according to information on its website.

Investors are itching to get more involved, and the starting gun has been fired. According to the New York Times, one of those investing groups is Able, an early-stage investor in two companies involved in research of psychedelic compounds for medical use: London-based COMPASS Pathways (granted a patent that covers treating drug-resistant depression with psilocybins), and Germany’s ATAI Life Sciences, a biotech company that is a major investor in COMPASS.

The psychedelic sector is going to be one of the drivers of the collective recovery from the current economic malaise around the world, according to Richard Skaife, a venture capitalist with The Conscious Fund, speaking during the Virtual Psychedelic Conference in April sponsored by the fund. The Conscious Fund is an early-stage venture capital firm focused on medical cannabis, hemp and psychedelics.

“What you are looking at is a business that is ultimately closer to being a bioscience company, so you want to look at the validity of the science,” Skaife said. “If we found someone who had the perfect scientific execution, but, really, had serious questions around how they were approaching business, then we would struggle in terms of making investments into that type of entrepreneur.”

Matthew Nordgren, founder and CEO of the Arcadian Fund, which is focused on the cannabis and hemp industries, said during the conference that the psychedelic industry should be more about developing patients and therapies, whereas cannabis also focused on the recreational part. “You should ask yourselves how to not fall into the cannabis space issues with penny stocks, where people tried to make a quick buck,” Nordgren said. “It’s important to have a long-term investment view, and long term access to capital.”

Panellists at the conference were asked what was learned from the cannabis business start-ups? “I joke that weed was just a warm-up,” said Robert Laurie, lawyer and board advisor to MAPS.

“Psychedelics is much more complicated. At the moment, you have a lot of people in the car going 100 miles per hour in all sorts of directions. I don’t think we are even at the start of venture capital,” Laurie said. “Smart venture capital and start-ups are realizing these days that they can get money themselves. What they need big brothers and big sisters for is to be able to do things they can’t do themselves. Just teeing up with a venture capital fund to get money, that it won’t do it,” he said.

“I think that there is a fundamental difference between the two industries,” said Regan. “There is a much more tactical approach to capital raising, to investor marketing, and to communications. In the cannabis business, there was a rush to raise capital and bring in new business and generate profits. Within the psychedelic arena, which is in health care and biotech, you are going to see development that is well thought-out.”

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