By Richard Nop
In 2018, the market observed an investment bubble into cannabis. Since then, a similar trend has resurfaced with the psychedelic craze which has subsequently raised investment capital. Commonly associated with magic mushrooms, ketamine, MDMA and LSD, these ‘magic’ substances have caught the keen eyes of investors. What’s up with this new craze?
The World Health Organisation has estimated that over 700 million people are currently dealing with some form of mental health disorder, whether that be PTSD, addiction, depression or anxiety. Research released by the scientific, medical and psychiatric communities reveals their capacity to provide sound treatments for mental health ailments. Policies are changing across North America where licensed providers have been granted access to use psychedelics. The efficacy of these magic compounds in mental health treatment could be revolutionary and is being looked at as a source of investment opportunity. That begs the question, are investors tripping over this idea or does it have potential as a worthwhile investment?
Psychedelics in the Political Spotlight
Psychedelics (also known as hallucinogens) are a class of psychoactive substances which affect all the human senses, inducing changes in perception, mood and cognitive processes. Psychedelics have been used by indigenous communities for centuries. More than 40,000 patients were treated with psychedelics, and it wasn’t until in the 1970’s, where U.S. President Richard Nixon criminalised it as part of a “war on drugs”. This idea was adopted across the world.
Richard (Rick) Doblin, founder and executive director of the Multidisciplinary Association for Psychedelic Substances (MAPS) states that what is being observed today is a “psychedelic renaissance”. At present, Canadian companies can seek government approval of psychedelic usage for medical, scientific and industrial uses only. Oregon has legalised psilocybin therapy. Washington D.C. has decriminalised all plant and fungi-based psychedelics. The U.S. Food and Drug Administration (FDA) has approved the use of psychedelics, fast-tracking research for PTSD treatment. Last year, eketamine (ketamine) became the first psychedelic drug to be approved for depression delivered in the form of a nasal spray in the United States through a restricted distribution system. With new exemptions being introduced, new rules and changing attitudes, advocates are hopeful of the decriminalisation of this class of drugs.
The Mental Health Landscape
It has been revealed that 40 percent of U.S. residents were struggling from mental health issues due to the Covid-19 pandemic, as reported by the U.S. Centres for Disease Control and Prevention. A draft report released by the Australian Productivity Commission estimates that mental health problems and suicide is costing Australia up to AU$180 billion per year and treatment and services are not meeting expectations. Scientific research reveals the immense capacity of psychedelics being used as cures for mental health disorders, used to ‘reset’ the brain. This, coupled with the lack of innovative options for mental health problems represents a market opportunity, with $2.5 to $8.5 trillion in economic output lost every year due to these conditions.
Sector Outlook & Performance
Momentum for these forms of treatments is readily growing as the volume of scientific literature increases in support for psychedelic use. More than thirty companies in North America are now focused on psychedelic medicine and actively raising capital. U.K. biotech Compass Pathways flagged a planned US$100 million initial public offering in the U.S. to further develop the treatment of depression using psilocybin. It has now surged over 200 percent since its trading debut. Atai Life Sciences AG, a German startup exploring ways of using psychedelics into mental health treatment, has been valued at about US$2 million in a funding round ahead of its potential listing. Around twenty-five companies on the Candian Stock Exchange are in the psychedelic business, with the first psychedelic ETF being launched just earlier this year.
The psychedelics drug market size is projected to reach US$10.75 billion by 2027, growing at a compound annual growth rate of 12.36 percent during 2021-2017. Analysts believe that the sector could bring in over US$6.85 billion by 2027. Canadian listed shares of MindMed (a company researching psychedelics treatment) have surged over 50 percent in August to September 2020, and have more than tripled since the end of October. Large funds have been invested into research and development with the chance that the discovery of a medical breakthrough may disrupt the US$70 billion market for mental health.
With all things presented thus far, this is still a new market and these classes of drugs are still illegal. Despite the immense excitement in this potential new medical breakthrough, policies will play a crucial role in bringing these treatments to the market. In spite of this, this industry has revolutionary potential to disrupt the mental health market due to the profound benefits it creates.
Sources: Alcohol and Drug Foundation, Australian Financial Review, Australian Productivity Commission, Bloomberg, BNN Bloomberg, Casey Research, Investing News, Nasdaq, Research and Markets, Rolling Stone
The authors of this publication are not qualified to provide financial or investment advice and as such the content provided should not be construed in this manner. All information is intended purely for educational purposes and is provided for the personal interest of UNIT members. The opinions expressed within the article do not reflect those of UNIT as an organisation, its partners or its sponsors.