While the term “psychedelic” might conjure up thoughts of tie-dye, flares, and rock music, psychedelics have come a long way— specifically, from recreational use at raging concerts to carefully monitored research and medical settings where their potential for mental health healing is studied closely. 

In exciting news for the mental health world in particular, psychedelics are just beginning to make a splash in the prescription drug space. 

Case in point: In March 2019, Spravato, a drug produced by the Janssen Pharmaceutical Companies of Johnson & Johnson consisting of esketamine (which is derived from ketamine) was approved by the U.S. Food and Drug Administration (FDA) for treatment-resistant depression. This has been regarded as “the first major advance in the treatment of depression since the late 1980s.” 

For the millions suffering from depression, that’s a big deal. 

As you might have guessed, this new psychedelic drug is not alone on its path to market. 

In August 2017, the FDA granted “breakthrough therapy” status to study MDMA (also known as “ecstasy”) for the treatment of post-traumatic stress disorder. The “breakthrough therapy” designation means that the FDA “will expedite the review of the drug and potential approval.” 

MDMA-assisted psychotherapy is currently in Phase 3 trials— the final phase before FDA approval.

Then, in October 2018, COMPASS Pathways, a London-based biotech company, received FDA breakthrough therapy designation for its study of psilocybin (aka “magic mushroom”) therapy in treatment-resistant depression. According to one analyst, U.S. sales of this compound alone could reach $108 million in 2025 (the expected commercial launch year of the drug) and $3.3 billion by 2031.

These treatments have enormous potential for medical use, so it’s no surprise that there are many psychedelic startups working on innovative treatments for mental health disorders. In September 2020, COMPASS Pathways became the first psychedelic medicine company to go public on a major US exchange. But, it won’t be the last. 

Here’s why you should consider adding psychedelics to your portfolio. 

What is psychedelic medicine?

Psychedelics “are powerful psychoactive substances that alter perception and mood and affect numerous cognitive processes.” They include but are not limited to Lysergic Acid Diethylamide (LSD), Psilocybin or “Magic” Mushrooms, DMT/ Ayahuasca, Mescaline/ Peyote, MDMA (or ecstasy), 25I-NBOMe, better known as N-Bomb, Salvinorin A (or salvia), Phencyclidine (or PCP), Ketamine, and Dextromethorphan (or DXM). 

Psychedelics cause hallucinations and other sensory disturbances. In short, they work by “stimulating, suppressing, or modulating the activity of the various neurotransmitters in the brain.” While they stay in the body for a relatively short period of time, they can have long-lasting psychological effects. 

Psychedelics came into popular use in the 1960s and 1970s but were eventually made illegal, limiting researchers’ access to study them for medical use. LSD was outlawed in the U.S. in 1966, and MDMA was banned in 1985

It wasn’t until the 2000s that the FDA and the DEA began to approve psychedelic research again. Since then, psychedelics have made their way one by one to labs where they are proving their ability to treat mental health issues including depression, suicidal thoughts, PTSD and anxiety.

The advancement of psychedelics have everything to do with advances in science. According to Amanda Feilding, founder of the Beckley Foundation, which investigates psychoactive substances and advocates for global drug policy changes, “The combination of advancing neuroscientific knowledge, modern brain-imaging technology and psychedelics provides a unique microscope to the mind, allowing us to map changes in consciousness to changes in neuronal and physiological activity. This opens up a new universe in which we can explore novel pathways to treat many of our most intractable illnesses, and to expand our understanding of consciousness itself.” 

The more that scientists understand the brain, the greater the potential for psychedelics. 

More and more, the clinical community, regulators and investors alike are open to psychedelic treatments. This is especially true following legalization of medical cannabis, which formally recognized the drug’s therapeutic benefit. Cannabis is now only “fully illegal” in seven states. 

Despite their progress, however, psychedelics drugs are still considered Schedule I drugs, which are defined by the DEA as “drugs with no currently accepted medical use and a high potential for abuse.” A schedule change remains a hurdle for all research firms hoping to bring psychedelics to the mainstream.

That said, prescription psychedelic drugs are likely to take a more expedited path to FDA approval for prescription use than more traditional counterparts, in part because humans have been consuming them for decades. 

Why invest in psychedelics?

The growing momentum for psychedelics is happening in parallel to an escalating mental health crisis worldwide. 

More than 250 million people worldwide are suffering from depression. And those numbers are only expected to get worse. 

In late June 2020, after the arrival of the coronavirus disease 2019 (COVID-19) and resulting global pandemic, 40% of US adults reported struggling with mental health or substance abuse, according to the Center for Disease Control. In another recent study that assessed 402 adult COVID-19 survivors, 55% presented a clinical score for at least one mental disorder, including anxiety (42%), insomnia (40%), depression (31%), PTSD (28%), and OCD (20%). 

Depression is a serious condition that “can dramatically affect a person’s ability to function and live a rewarding life,” according to the World Health Organization. “It is characterized by persistent sadness and a lack of interest or pleasure in previously rewarding or enjoyable activities. It can also disturb sleep and appetite; tiredness and poor concentration are common. Depression is a leading cause of disability around the world and contributes greatly to the global burden of disease.” 

Depression is linked to suicide, which is the cause of death for nearly 800,000 people every year. It’s the second leading cause of death in 15-29-year-olds.

While depression and mental health issues are growing, they are hard to treat effectively. Psychedelics are offering the world new hope.

The excitement for the psychedelics market reflects that enthusiasm. According to a September 2020 report by US News, the estimated market size for psychedelics could be as large as $100 billion. In other words, as startups begin to successfully bring new psychedelic prescription therapies to market, there will be plenty of potential customers hoping for mental health help lined up at the door.

How to invest in psychedelic medicine

As a broad and emerging industry, psychedelics are currently difficult for investors to access. There are only a few public companies in the space, such as COMPASS Pathways, but there are a number of associated firms that are set to benefit from the growth of psychedelic medicine. A search on Magnifi suggests that there are ETFs and mutual funds available to interested investors.

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