Over the course of 2020, psychedelics (especially psilocybin), have become a central investment theme and represent a major shift in public sentiment. Canada was instrumental in showcasing increased mainstream acceptance of the drug with the passing of the Section 56 Exemption, earlier this year. This allowed researchers to administer psilocybin, the active drug in “magic mushrooms”, to 4 terminally ill patients to treat end-of-life anxiety.
Prior to this decision, three cities within the U.S. have ruled to legalize psilocybin: Denver, Oakland, and Santa Cruz. Oregon is one of two states voting on the legalization of psilocybin this month, with Washington D.C. currently voting on the issue (with interim results favourable toward legalization, as of Tuesday, November 3rd).
Continue reading to find out what legalization really means, how this could impact the industry, and how this deal will move forward.
Legalization – What Does it Mean?
It seems like just yesterday that state lobbyists and governments were in discussions to legalize marijuana. Now, the decision has been escalated to a federal level, with the impending presidential result pivotal for the future of the industry.
At a city-wide or state-wide level, legalization of psilocybin permits supervised use based on a series of regulatory requirements, decided by the government. In Oregon, this means that approved patients can use the psychedelic drug in a therapeutic setting. Recent research from John Hopkins, UCLA, and more have shown promising results of psilocybin therapy for depression, PTSD, and addiction.
Legalization in Oregon (and possibly Washington) will allow information about the effect that psilocybin has on mental illness to become more widely understood and allow for the confirmation or dismissal of early claims.
This is a breakthrough for the drug, though the legalization agreement also creates a two-year period during which regulatory details will be worked out, including what qualifications are needed for therapists to oversee its usage.
Legalization of psilocybin will not be akin to the legalization of marijuana and will not allow medically prescribed users to purchase and consume the substance on their own; instead, the law allows anyone 21 or older (who have passed a medical screening) to be administered the drug at licensed facilities.
Psychedelics – Industry Impact
Generally speaking, more data is better. As long as the effects that psychedelics can have on mental illness remain relatively unknown, there is no way to objectively celebrate or dismiss their usage and exploration. Thus far, some incredibly well-respected institutions (with John Hopkins at the head) have called for increased exploration into their usage, demanding that regulators allow for further research to be conducted.
State-wide legalization of the regulated therapeutic use of psilocybin will massively expand the research possibilities for the drug. By increasing the amount of research and thus, the transparency within the industry, this ruling could create a domino effect across the U.S. and like-minded countries. Demystifying the effects of psilocybin as a treatment, through empirical evidence, will allow for skeptic states to consider a similar vote, thus compounding general acceptance.
Increased psilocybin testing and research is currently expected to yield positive results, as early evidence has suggested extreme promise in treating various mental illnesses, with depression at the forefront.
The global antidepressant drug market is estimated to reach $15B US by 2023, with a compound annual growth rate (CAGR) of 2.1% from 2017 to 2023, according to a report from Allied Market Research. If psilocybin (and additional psychedelics) can become generally accepted as a proven treatment for depression, they could end up taking a large chunk out of this market and disrupting the pharmaceutical industry entirely.
If this ends up happening, growth within the psychedelic industry will exponentially increase and psychedelic ‘unicorn’ IPOs such as Compass Pathways (NASDAQ: CMPS) will become more common.
Overall, this vote has only served to add to the perceived legitimacy and commercial potential for psychedelics.
Next Steps from this Deal
This won’t be an overnight change; it will be a gradual evolution.
As mentioned earlier in this article, this agreement creates a two-year period for regulatory details to be sorted out. Additionally, the limitation of psilocybin’s use to qualified, licensed therapists will result in progress moving forward at the pace of government… a notoriously slow process.
The first step for therapists and researchers is to apply for, and gain, local licensing approval and establish government-sanctioned facilities and supply chains. While entrepreneurs and investors who are willing to accept higher risk and extended investment horizons will be continuing to enter the psychedelic space, it’s likely that conservative institutional and retail investors will remain on the sidelines for some time to come.
While psychedelic legalization has its own uniqueness when compared to marijuana, looking back on the timeline for pot stocks and associated regulation could offer some insight into how long this process will take… though only time will tell.