How could DEA approval boost psilocybin stocks?

Psychedelics are increasingly being recognized for their therapeutic and medicinal potential. DEA (Drug Enforcement Agency)-proposed advances in the legal production levels of psychedelics have led to a major industry boost.

Promising psychedelics

The US Drug Enforcement Administration is allowing for increased research into psychedelic-assisted psychotherapy.1 Experts say psychedelics may hold the key to alleviating the medical and mental health woes widespread today. Dr. Jerome Jaffe of the University of Maryland School of Medicine explains that psychedelics have the “capacity to induce states of altered perception, thought, and feeling that are not experienced otherwise except in dreams or at times of religious exaltation.”2

Most medical research on psychedelics focuses on psilocybin, the active ingredient in magic mushrooms, and MDMA (Methyl​enedioxy​methamphetamine) , also known as ecstasy or molly. DMT (Dimethyltryptamine), mescaline, and LSD (lysergic acid diethylamide) are other psychedelics being researched by universities, hospitals, and research institutes in the US, Canada, and the UK. The dramatic gains of psychedelics towards acceptance have had significant ramifications on the stock market, where psilocybin stocks and other psychedelic stocks are making waves.

Research on psychedelics shows favorable findings. The journal Nature Medicine published a 2021 study that followed 91 people suffering from severe, chronic PTSD. Half of them were given MDMA-assisted therapy, while the others were given a placebo. Nearly 90% of the participants treated with MDMA had a clinically significant reduction in their symptoms, and 67% no longer qualified for a PTSD diagnosis. Compare these numbers with standard talk therapy success rates for PTSD, which hover at around 40%, and FDA-approved medications for PTSD, which only lessen symptoms around 25% of the time.3

Research findings like these have medical researchers calling psychedelic-assisted therapies a lifeline. Psilocybin and other psychedelics are being explored for their role in treating anxiety, obsessive-compulsive disorder, alcohol use disorder, smoking, treatment-resistant depression, and more. Psychedelics are considered non-addictive and have very low toxicity rates, making some researchers regard them as a safer alternative to opiates and benzodiazepines.4

Research quotas repeatedly raised

December 2021 saw the DEA propose even higher final annual production quotas of psychedelics to meet the growing research demand. This comes after production quotas were already raised earlier in the year.5 As psychedelics are still Schedule I and II drugs, there are Aggregate Production Quotas (APQs) that set limits on how much of these substances can be produced. To meet increased research demand, the DEA has adjusted these limits time and time again, leading to significant funding increases for psychedelics. The DEA adjustments are good news for investors in psychedelic drug stock-focused ETFs such as Defiance’s PSY, with holdings in companies at the forefront of the psychedelic stock revolution.

Some of these holdings include Forian Inc, which provides data solutions for the medical cannabis segment; Cardiol Therapeutics, a leader in research and development of pharmaceutical cannabis therapies for cancer and heart failure patients; and GH Research, which is exploring psychedelics like 5-MeO-DMT for use in treatment-resistant depression and other psychiatric disorders.6

The current proposed APQs represent a massive leap in production within a short time span. For reference, original production quotas for 2021 were 30 grams of psilocybin, 50 grams of psilocin, 50 grams of MDMA, 50 grams of DMT, 40 grams of LSD, 25 grams of mescaline, and 35 grams of 5-MeO-DMT. The final proposed quotas for 2022 are 8,000 grams of psilocybin, 4,000 grams of psilocin, 8,200 grams of MDMA, 3,000 grams of DMT, 500 grams of LSD, 100 grams of mescaline, and 2,550 grams of 5-MeO-DMT.7

The DEA explained that “the increases reflect estimates of the medical, scientific, research, and industrial needs of the United States for 2022, as well as lawful export requirements and establishment and maintenance of reserve stocks.”8 Research and clinical trial activity in the US and Canada accounts for much of the demand increase as psychedelics are taken increasingly seriously by the medical research community. The DEA has made it clear that if additional research protocols are requested, APQs can be further adjusted to meet those needs.

The legal front

Advocates maintain that the designation of psychedelics under the strictest federal drug category is inappropriate in light of research findings that highlight their medical value.9 In August 2021, a federal appeals court dismissed a petition to force the DEA to reevaluate cannabis’s scheduling under the Controlled Substances Act, though a judge reportedly stated that the DEA may soon need to consider a policy change due to marijuana’s therapeutic value. The Washington State attorney general’s office and lawyers who represent cancer patients appealed for a change in how the DEA handles psilocybin for patients receiving end-of-life care.10

North of the US border, psychedelics are becoming more widely accepted for medical and therapeutic use in Canada. Health Canada’s Special Access Program (SAP) gives authorization for medical approaches when conventional therapies are unsuitable or have failed to treat a patient. Several amendments to the SAP made in January 2022 permit medical practitioners to request approval for psychedelics for eligible patients.11

Canadian public opinion is overwhelmingly favorable regarding psychedelics-based treatments such as psilocybin-assisted therapy. According to a Nanos Research Survey, 82% of Canadians approve of psilocybin for use with patients suffering from an end-of-life illness, and 78% would support government legalization of psilocybin-assisted therapy to benefit the quality of life of end-of-life and palliative care patients.12 Regulatory change is being actively pursued with the public firmly behind psychedelics’ use for special purposes.

The United States has also seen significant, widespread progress regarding the decriminalization of psychedelics. Two Oklahoma Republican state representatives recently filed bills to promote research into the therapeutic use of psilocybin, calling it an “incredibly effective therapeutic tool.”13 One of the representatives, Logan Phillips, is a military veteran who has worked with people who have PTSD, a condition for which psilocybin-assisted treatment has shown promise.

This isn’t the first time that increased concern over veterans’ mental health has spurred on psychedelics programs. A bill passed last year in Texas required the state to research psychedelics to treat military veterans. Around the United States, studies are being carried out looking into the potential of psilocybin to treat “major depressive disorder, severe depression, or any other form of depression or anxiety that is not adequately treated by traditional medical therapies.”14

Legislation and ballot initiatives surrounding psychedelics have raised some eyebrows, particularly in politically conservative states. But as Rep. Phillips explained, “We want to see measures and methods, even for these non-traditional medicines, if it brings peace of mind, mental health to our communities, our citizens. We’re going to be for that.”15

In Utah, a bill was introduced to put together a task force to study psychedelic drugs’ therapeutic potential and consider regulating their lawful use. In Kansas, a bill was filed to legalize low-level possession and cultivation of psilocybin mushrooms. Missouri’s existing right-to-try law may be expanded to give seriously ill residents access to several psychedelic drugs. California’s Senator Scott Wiener is pushing forward a bill to legalize psychedelics possession, which may reach the governor’s desk now that it has cleared the Senate and Assembly.

Other states that have filed measures to further the acceptance of psilocybin and other psychedelics include Michigan, Washington, Vermont, New Hampshire, and Connecticut. Bipartisan lawmakers in Congress urged the DEA to allow terminally ill patients to use psilocybin without fear of being federally prosecuted based on the promise shown by psilocybin in early clinical trials.16

The stars have aligned for psychedelic-assisted therapies as public opinion, medical research, and government funding come together. Psychedelics seem poised to enter the mainstream, and investors continue to be excited about the emerging potential of psychedelic stocks.

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