By Allison Margolin Esq., Gohar Tahmizian, Zachary Tucker (Margolin & Lawrence)
Psychedelic companies going public on the Nasdaq stock trading market are getting increased attention from investors burgeoning into its own financial sector. Due to greater government decriminalization and positive mainstream attention, companies in the psychedelic sector have begun expanding their research on psychedelic, or hallucinogenic, drugs. So far, the results seem not only to be positive, but also potentially profitable.
However, the recently-discussed medical benefits of psychedelic drugs are far from novel. Lysergic acid diethylamide (LSD) was first synthesized in a laboratory by Swiss Chemist Albert Hofmann in 1938. Its mind-altering properties were not discovered until 1942. Shortly after this discovery, clinical studies across the world ensued. Between the 1950s and late 1970s, a vast amount of research was conducted that yielded positive findings for psychedelic drugs. However, psychedelic research largely came to an end in 1980 after political outcry. Governments banned the use and study of psychedelic drugs like LSD across the globe.1 It was not until the last decade that clinical studies of these drugs have resumed, largely due to more progressive views and decriminalization of drugs in general.
Throughout the past decade, research has confirmed what initial studies suggested 70 years ago, that psychedelics are incredibly effective in treating a variety of mental disorders like depression, suicidal thoughts, PTSD, and anxiety.2 The industry according to Data Bridge, is set to grow with a compound annual growth rate of 16.3% over the next eight years.3 As a result, big pharmaceuticals are not skipping a beat and are swiftly beginning their own research. “Dozens of biopharmaceutical companies are competing against each other since the ones that develop the intellectual property to synthesize the molecules to help treat disorders will likely be profitable and attract more capital.”4
Currently, the largest obstacle that the psychedelic sector is facing is the fact that they are classified as Schedule 1 drugs. 5 Under this classification, these drugs become stiffly controlled by the federal government and are expensive to obtain. Tania Gonsalves, analyst for Canaccord Genuity Capital Markets, reported in a research article released in March, "each of the labs, researchers and manufacturers need to obtain licenses to produce, store and work with the compounds. This eats into profit margins and materially extends development timelines.”
However, The Food and Drug Administration (FDA) is approving and encouraging several clinical research trials due to positive results.6 In December 2018 the FDA published a document that explains the implementation of the Breakthrough Device program. This program is “designed to streamline the market clearance/approval process for certain medical devices and device-led combination products in the United States.”7
According to U.S. News:
“The FDA granted three psychedelic programs the Breakthrough Therapy Designation, which "shortens the process of drug development and review by about 30%," reported Gonsalves. She further explained that prescription drugs currently take more than a decade and $2.6 billion to develop, but the development for prescription psychedelic drugs is estimated to be shorter. "Decades of human consumption and the resultant efficacy – supporting data will expedite clinical trials, reduce cost and improve the probability of success.” The total estimated market size could be as high as $100 billion. The companies that will emerge as the winners "will have deep pockets, patentable products and a well-thought-out reimbursement strategy.”8
Many companies have begun their own psychedelic trials to be the one to come up with the most effective and profitable trademark. For example, MindMed is working on a digital medicine division known as “Albert.”9 “Albert is in the process of assembling and recruiting a leading team of technologists, therapists, and clinical drug development experts to help the company research, develop and build an integrated technical platform and comprehensive toolset aimed at delivering psychedelic inspired medicines and experiential therapies combined with digital therapeutics.”10 Just this week, MindMed announced the completion of a successful pre-Investigational New Drug (IND) meeting with the U.S. Food and Drug Administration (FDA) in preparation of their Phase 2b clinical trial. The trial will begin in August of next year, and it will evaluate experiential doses of LSD as a treatment for anxiety disorder.11
The Multidisciplinary Association for Psychedelic Studies (MAPS) is a 501(c)(3) non-profit organization that has been dedicated to the research and development of medical and legal benefits of careful uses of psychedelics and marijuana since its inception in 1986. MAPS has been on the forefront of potential medicinal and psychiatric benefits of Ayahuasca, Psilocybin, DMT, and LSD on treating anxiety, depression, feelings of hopelessness, and panic disorders.
While research into psychedelics continues to show positive medicinal results governmental acceptance continues to grow. After the November 2020 election Oregon passed Measure 109 becoming the first state to legalize access to psilocybin, the active ingredient in ‘magic mushrooms’ for mental health treatment. Oregon further passed Measure 110 decriminalizing
possession of small amounts of hard drugs including heroin and LSD.12 Initiative 81 decriminalized the use of ‘magic mushrooms’ and other psychedelic substances in the District of Columbia, Id. More states eased marijuana laws and legalized cannabis for recreational use including New Jersey, Arizona, Montana and South Dakota during the 2020 election.
The 2020 election is not only a win for psychedelics on the path toward legalization but opens a sector for profitable gain on the stock market. The passage of the Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act) by the House would effectively end the federal prohibition of marijuana and remove it as a Controlled Substance if put into law. Since the announcement of the passage of the MORE Act the stock for MindMen increased. The marijuana advertising platform Weedmaps announced this week it was going public with a $1.5 billion valuation. The correlation between psychedelic legalization and the stock market shows profitable gains for investors and the treatment of mental health.
Other companies investors should be keeping their eye out for are Seelos Therapeutics (SEEL), Compass Pathways (CMPS), Revive Therapeutics (RVVTF), and Champignon Brands (SHRMF). It is without a doubt the psychedelic sector is beginning to integrate with the biotechnology industry and bringing monetary gains with it.
Allison has shares in MindMed, (MMEDF), Compass Pathways (CMPS), Seelos Therapeutics (SEEL), GW Pharmaceuticals (GWPH) and Sundial Growers (SNDL).
Disclaimer: Absolutely nothing you read in here should be taken as investment advice. The discussion of securities and ideas is never to be considered a recommendation to buy or sell any. Always do your own due diligence.
For more information about this post, contact Margolin & Lawrence.