What can medical cannabis tell us about the psychedelics market?

Psychedelic treatments for mental illness are getting a lot of press recently. As diagnoses for depression, anxiety, eating disorders and others are on the rise, especially during the uncertainties, challenges and tragedies of the COVID-19 epidemic, existing medications and approaches are found wanting. Scientists have begun to revive a research field that had been largely neglected since the 1970s – the use of magic mushrooms or other “hallucinogens” to heal. In response to scientific, political, legal and therapeutic developments, investors are rightly asking what they can expect from the nascent psychedelics market. For a comparative analysis, let’s consider what cannabis can tell us about a possible trajectory for psychedelic stocks.

What are psychedelics?

But first let’s clarify some terms. Psychedelics (serotonergic hallucinogens, including psilocybin and ketamine) are powerful psychoactive substances that can alter perception and mood and affect numerous cognitive processes. Their alternative label of hallucinogens is not actually accurate, as they only produce hallucinations in some subjects. Scientists have also recently succeeded in isolating the non-hallucinogenic compounds they contain, which paves the way for more accessible psychedelic-based treatments for mental health and neurological conditions. That’s because the current model being explored involves patients being supervised and guided during a six to eight hour psychedelic experience. With the right setting and trained-support, studies have shown that even one such intervention can have life-changing positive impact on conditions that had seemed untreatable. Psychedelics appear to promote neural plasticity, essentially allowing the brain to rewire itself. Recipients describe insight and paradigm shifts akin to mystical or spiritual awakenings, that allow them to view the world and themselves completely differently.

In 2018 and again in 2019, the FDA declared psilocybin a “breakthrough therapy,” which allowed two U.S. medical research organizations, CompassPathways and the Usona Institute, to pursue their research on its use for treatment-resistant depression and major depressive disorder. In 2019, Johns Hopkins and Imperial College London both launched centers devoted to psychedelics research. Also that year, the world’s largest healthcare company, Johnson & Johnson, received FDA approval for a ketamine-based nasal spray, Spravato, to treat depression.

Psychedelics (including psilocybin and ketamine) were banned in the United States in the 1970 Controlled Substances Act. And at the federal level they remain illegal, except for Trump’s May 2018 “Right to Try” Act, which some doctors understand as allowing terminally-ill patients to use psychedelics for treatment. However some states and cities are decriminalizing certain psychedelics, which makes it easier to use them for research and treatment and makes their removal of the lowest priority for the police. Santa Cruz and Oakland have decriminalized a variety of psychoactive plants and fungi, and Denver has specifically decriminalized magic mushrooms containing psilocybin. In November 2020, Oregon became the first state to legalize magic mushrooms.

What’s the connection between cannabis and psychedelics?

The legal and political frameworks are critical to development in these sectors. Once the FDA designated Compass Pathway’s patented synthetic form of psilocybin as “breakthrough therapy”, it IPO-ed on the Nasdaq and has since risen more than 100% from its initial listing price of US $17, making it the first and most valuable unicorn psychedelic medicine company in the world.

Cannabis companies have seen a similar trajectory. While cannabis is also illegal at the federal level according to the 1970 Controlled Substances Act, numerous states have made exceptions for both recreational (17 states) and medicinal use (37 states). Another 13 states have decriminalized is use and the FDA has approved some of its derivative compounds for prescription use. This facilitates research and has fostered a somewhat volatile yet growing sector encompassing the whole cannabis ecosystem, from growers and producers to researchers and distributors. 

And as the law continues to adapt to scientific research and treatment results, the market reflects these changes in its growth and development. By 2017 there were already around 28,000 cannabis businesses in the US and the estimated medical marijuana sales in 2020 were $7.1bn. The US now dominates in global legal cannabis spending, with an anticipated national market of over $31 billion by 2024.1

A graph showing the increase of legal cannabis spending globally
Legal cannabis spending worldwide from 2018 to 2024, by country. As of May 11, 2021 (https://www.statista.com/statistics/1005181/global-legal-cannabis-market-size-by-country/)

If we zoom in on states that have the most conducive legal approach to cannabis sales, we see strong growth in 2019.

A graph showing retail sales growth of legal cannabis
Retail sales growth of legal cannabis in major state markets in the United States in 2019, by quarter. https://www.statista.com/statistics/1104421/quarterly-sales-growth-of-legal-marijuana-in-main-us-states/

As with medical cannabis, psychedelics’ commercial potential is growing as the political and legal environmental is forced to catch up with the science. Numerous M&As and IPOs reveal that the psychedelics market is dynamic and drawing well-funded pharma giants along with it. In May 2020, AbbVie bought Allergan for US$63 billion, thereby acquiring its ketamine-like treatment for depression. Toronto-based MindMed, which is developing therapies based on psychedelics including Psilocybin, LSD, MDMA and DMT, announced a $50 million IPO on December 14, 2020. For those of us who saw the cannabis growth over the last year or so, we might well take notice of how legalization can bring new opportunities in the psychedelics space.

1 https://www.statista.com/topics/3064/medical-marijuana-in-the-us/#dossierSummary