No hallucination: Psychedelics could be next cannabis-like boom

Don’t miss our MJBiz LinkedIn Live covering “Women Leaders in Cannabis: Shattering the Grass Ceiling” on Wednesday, March 27, at 2 p.m. ET. Visit LinkedIn to register!


(This story has been updated to reflect another Bruce Linton tie to a psychedelic company.)

Investors as well as cannabis companies and executives are rushing into psychedelics, a multibillion-dollar opportunity that reminds some of the early days of marijuana – although this infant industry could play out much differently.

The potential market opportunity for psychedelics is as much as $100 billion globally, according to Vancouver, British Columbia-based investment banking firm Canaccord Genuity.

Scientists believe psychedelics could help treat a range of mental health and behavioral issues, including depression, anxiety, post-traumatic stress disorder (PTSD), addiction and attention deficit hyperactivity disorder (ADHD).

The main ingredient, psilocybin, can activate serotonin receptors, stimulating neural activity in the brain and enhancing consciousness.

Studies done since 2016 by Johns Hopkins University in Maryland and other researchers show potential for psychedelics to treat persistent depression.

Here are just a few indicators of the wave of interest in psychedelics:

  • In the past year alone, dozens of companies have moved into the space, either as psychedelic-only companies or from other industries such as bioscience, pharmaceuticals and cannabis.
  • A number of cannabis scientists in Canada and the U.S. have shifted to psychedelics or are now in both industries.
  • Cannabis executives are embracing the trend. For example, former Canopy Growth CEO Bruce Linton is involved in at least two psychedelic companies. He’s chair of the advisory board of the psychedelic mushroom business Red Light Holland as well as a board member and large stockholder of one of the biggest psychedelic companies, New York-based MindMed. MindMed started trading on the Nasdaq on April 27.

“It’s the early days again. It’s like going back 20 years in the journey of cannabis,” said Calum Hughes, CEO of Vancouver, British Columbia-based Allied Corp., a cannabis company that is developing psychedelic products.

But MindMed CEO JR Rahn, a former Silicon Valley tech executive, recently told the business newsletter Morning Brew that psychedelics shouldn’t be compared to cannabis.

“Our company’s objective is not to make your Burning Man experience more pleasurable. Our objective is to treat mental health,” Rahn said.

Tania Gonsalves, a health-care analyst with the Vancouver, British Columba-based investment banking firm Canaccord Genuity, had a similar take during a webinar last December.

“I do not think this market should be compared to cannabis whatsoever. It’s not the same at all, apart from the fact that these both started as illicit drugs,” she said.

Someone can smoke a joint and be fine walking to a friend’s house, Gonsalves said. By comparison she said, “I don’t think anyone can do LSD and be let onto the street.”

“It’s very dangerous. We should not be putting these medicines in people’s hands recreationally,” she said. “Federally, I do not believe it will ever be legal.”

Others disagree, but they concede it likely will be years before psychedelics are legalized federally or recreationally.

One reason why it could: Psychedelic companies are working to develop microdose, non-hallucinogenic products as well as hallucinogenic ones.

A timeline of the events related to psychedelic drug legalization.

 

Changing landscape

Magic mushrooms, as they were known in the 1960s, became illegal in the U.S. in the 1970s. Today, the active ingredient, psilocybin, remains classified as a Schedule 1 drug in the U.S. under the federal Controlled Substances Act.

But things are changing, and quite rapidly so.

Last November, Oregon became the first state to legalize psilocybin for the treatment of certain mental health conditions under doctor supervision. Several cities have essentially decriminalized psychedelics, with Denver the first in 2019.

Across the border, where a lot of the research and development is taking place, Health Canada, which sets government health policy in that country, last year approved psychedelics to treat selected patients with terminal cancer. Health Canada has gradually expanded that program.

Money has been pouring into psychedelics in deals underwritten by companies such as Canaccord Genuity and Gravitas Securities.

Billionaire venture capitalist Peter Thiel is backing a German psychedelic company called Atai Life Sciences.

Shark Tank’s Kevin O’Leary invested in MindMed and Compass Pathways, the first psychedelic company to trade on the Nasdaq.

David Townshend, a senior investment adviser at Canaccord Wealth Management, described the phenomenon during last December’s webinar as an “investment rush” that is in the early innings.

Gonsalves cautioned potential investors, however.

“I think the sentiment around the space is so hyped up right now because one’s mental health is on everyone’s mind coming out of this pandemic,” she said. “Be wary. I don’t think it’s going to blow up the same way that cannabis had.”

Cannabis redux?

Av Singh, a Canadian cultivation consultant who works with the cannabis industry, said psychedelics feels like cannabis did when it was about the medicine, not just the money.

Singh, who lives in Nova Scotia, is an organic farming specialist who works with gourmet and medicinal mushroom growers.

His main interest in psychedelics right now is to advocate for veterans’ access to psychedelics to help treat PTSD, addictions and depression through a group called Veterans for Healing.

Singh said he believes psychedelics eventually will be legalized for recreational use.

But he said he wouldn’t want that to happen until the stigma of using psychedelics is reduced through education and better acceptance by health-care practitioners .

“We legalized cannabis (in Canada) far too early before we got rid of the stigma,” Singh said. “I don’t want to see the same thing happen in psychedelics.”

Alexzander Samuelsson is a longtime cannabis scientist who now also is chief research officer for Vancouver, British Columbia-based psychedelic company Havn, which launched in January 2020 and is now trading on the Canadian Securities Exchange.

“It seemed like the right fit,” Samuelsson said, based on his skills, background as a chemist and the “regulatory finesse” needed, as in cannabis, to succeed in the industry.

“It certainly will develop differently (than cannabis), but there are parallels,” Samuelsson said, such as the potential to help people with mental health issues.

R&D at a frenzied pace

Canaccord Genuity recently reported more than 100 clinical trials involving psychedelic compounds.

Allied is one example of a company entering human clinical trials for psychedelics.

The company is in a Phase 1 clinical trial in Austria with a CBD-psychedelic regime to treat depression anxiety and PTSD.

Allied’s intention is to bring these products through Phase 1 and then license its intellectual property to Big Pharma for commercialization.

Hughes said he believes psychedelics most likely will go a similar regulatory route as Epidiolex, a GW Pharmaceuticals CBD product that won U.S. Food and Drug Administration approval in June 2018 to treat seizures associated with two rare forms of epilepsy.

MindMed’s April 2021 investor presentation includes a slide showing two treatment paradigms.

One is LSD microdosing for ADHD that would be non-hallucinogenic and available by a doctor’s prescription with pickup from a pharmacy.

The other is a high-dose, experimental hallucinogenic LSD in a clinic under doctor supervision to treat anxiety and cluster headaches.

Gonsalves said there’s a lot of “legitimate, viable companies” in the space, but each drug will take four-plus years to be approved by regulators and to generate positive revenue. Then companies still will be heavily regulated.

She expects the bulk of the market to be in the U.S., Canada, the “EU Five” (France, Germany, Italy, Spain and the United Kingdom), Japan and China.

Of drugs now in first-phase clinical trials, only roughly 10% will be approved and become commercial, she estimated.

Furthermore, Gonsalves said, medications are much more expensive than cannabis, especially if one factors in the cost of psychotherapy sessions that might come alongside.

In some cases, patients might only need a single dose or treatment for a relatively short period of time rather than a certain amount of psychedelics monthly, yearly.

“You have to factor that into the market.”

Despite the big dollars backing some of the large psychedelic companies in the space, Samuelsson of Havn said he’s optimistic about the young Canadian company’s chances.

But he’s still working on cannabis projects internationally as well.

“I’m definitely never leaving cannabis,” Samuelsson said.

Singh, the Canadian cultivation specialist, is concerned that psychedelics, like cannabis, could become controlled by large business interests.

While excited about the future, “my greatest fear is that psychedelics get abused by venture capitalists who see it more as a money opportunity than a medicine,” Singh said.

Jeff Smith can be reached at jeff.smith@mjbizdaily.com.