Should you believe in the Psychedelics Hype?

Should We Believe the Psilocybin Hype?

Companies quickly going public, decriminalization and a fair amount of hype about healing properties. Does the noise around psychedelics such as psilocybin sound similar to that of the U.S. cannabis industry at the beginning of state legalization?

Maybe, maybe not. There shouldn’t really be all that much of a comparison because the two nascent industries are fundamentally different and this should affect approaches toward them, argues Tim Schlidt, co-founder of investment fund Palo Santo, which has holdings in 25 companies involved in psychedelics worldwide. 

While cannabis has largely focused on legalization aspects and is available as a retail product in much of the U.S., psychedelics will continue to have more of a medical focus, he said, putting products through extensive clinical trials and then administering them in therapist-centered scenarios once they get approval for treating disorders such as depression, anxiety and PTSD.

“Right now, we are focused on moving these compounds forward through a medical framework, which is by far the most viable and accessible pathway for psychedelic medicines to reach the market in the shortest amount of time,” Schlidt told The News Station. “We want to do things in an ethical way.”

Making Progress, but the Path to Profitability Is Long

As academic scientific research increases into the possible effects psilocybin and other drugs may have on mental health, companies and organizations are ramping up their own trials. The industry is expected to be worth approximately $10.75 billion by 2027 compared with $4.75 billion in 2020, according to a report from Research and Markets.

For example, Compass Pathways, a U.K.-based company trading on the Nasdaq, said its phase 2b clinical trial of psilocybin therapy for treatment-resistant depression is close to completion. It is also conducting studies in psilocybin therapy in cancer with data expected to be reported in 2021.

Other notable progress includes MDMA studies with the non-profit Multidisciplinary Association for Psychedelic Studies (MAPS), which is due to complete a phase-three trial of psilocybin in early 2022 for treatment of PTSD. (Phase three is the final stage before seeking FDA approval for treatment.) Reset Pharma, which Palo Santo has an investment in, is conducting research into psilocybin treatment of depression in cancer patients, Schlidt said.

“Individuals dealing with a range of mental-health conditions are having varying results with antidepressants, and many are looking for alternatives,” Schlidt said. “We believe that psychedelics represent a paradigm shift in psychiatry and could provide safer and more effective treatment options.”

The road to eventual profitability, however, can be a long one for companies involved in researching psilocybin and other psychedelics. It could cost a company approximately $200 million just to get approved for clinical trials, meaning any path to profitability is multiple years away, Schlidt said.

The upside of such patience is that, once treatment is approved, profitability can be immediate, he added.

In terms of investment in such companies, there can be earlier returns as companies go public or they can get acquired by “bigger fish.” After all, including in the cannabis world, there are multiple examples of companies showing good returns for investors well before making any kind of profit.

Cannabis Companies Getting Involved?

Cannabis-focused companies appear, at least for now, to be largely steering clear of looking into psilocybin and psychedelics, perhaps because the business models are so different.

Minneapolis-based Goodness Growth Holdings, which operates the Vireo brand in cannabis, may be a rare exception. In June, the company said its subsidiary Resurgent Biosciences will expand into research and intellectual property development in psychedelics.

“Resurgent’s expansion into psychedelics represents a natural extension of our team’s medical and scientific expertise, and frankly we believe the opportunities for psychedelics to transform the future of mental health and psychiatry are far too significant for us to ignore,” Kyle Kingsley, CEO and chairman of Goodness Growth, said.

Kingsley’s background as a trained physician certainly has something to do with the company’s venture into psychedelics research, said Bill Bogot, Chicago-based partner at Fox Rothschild and co-chair of the company’s Cannabis Law Practice. It also helps the push toward making psychedelics more acceptable.

“Optically, and politically, a doctor talking about real scientific research is going to get people’s attention,” Bogot told The News Station. “A physician can articulate that and be politically advocating for it.”

Whether other cannabis companies eventually get on board remains to be seen, but, as Bogot pointed out, many big Illinois-based companies like Cresco, Green Thumb and PharmaCann started out as campaigners for medical marijuana as a potential treatment for a variety of illnesses.

“They saw cannabis as another tool in a physician’s box and so there is potential for them in (psychedelics) too,” Bogot said. “There are differences, but there are also overlaps.” 

And it may be an opportunity too big to ignore. Studies point, for example, to a significant increase in mental-health issues since the start of the COVID pandemic, in some cases rates of depression or anxiety, substance abuse, stress and suicidal thoughts nearly double those from before the pandemic.

Will Politicians Get on Board?

And then there is the congressional side of things. Given the multiple years it is taking for cannabis to be federally legalized, there is plenty of reason to be skeptical of politicians giving the green light to psychedelic drugs.

However, the approach again may be different, given the medicalization versus legalization focus. There is hope that politicians may eventually see psilocybin and its sister psychedelics as a bipartisan issue. If such products can be seen to help veterans with PTSD, for example, then both Democrats and Republicans are likely to approve, Schlidt said.

That may be some way off. In late July, legislation led by Rep. Alexandria Ocasio-Cortez (D-NY)  to boost research into psilocybin and other psychedelic drugs was defeated. But it is notable that the margin of loss was a lot narrower than previous attempts, with 49 additional representatives signing onto her efforts.

In addition, MAPS highlighted what it called a “sea change” in psychedelic research with the late-July passage of House Resolution 4052, funding the Department of Health and Human Services among other agencies. While the bill did not expressly refer to psychedelics, an accompanying report called for further research to be done in this area, particularly with regard to veterans suffering from PTSD.

“Though Congress still needs significant education and demystification regarding psychedelics, interest in psychedelic substances as potential treatments for mental-health disorders continues to grow alongside the body of evidence supporting their safety and efficacy for challenging mental-health conditions,” Ismail Lourido Ali, interim director of policy and advocacy for MAPS, said in a statement at the passing of the bill. “MAPS is encouraged that the issue of psychedelic care continues to cut through partisan lines, and we look forward to continuing to work with and educate Congress about psychedelic research, therapy and the harms of the War on Drugs.”

Similar But Different

The cannabis world, particularly with CBD, has been rife with claims that it can cure or alleviate all kinds of illnesses or disorders, most of which have never been proved. 

The one FDA-approved cannabis-based treatment remains Epidiolex, manufactured by GW Pharma for the treatment of seizures. That is perhaps the nearest analogy to psychedelics such as psilocybin as companies work toward similar FDA approval, Schlidt said.

For now, while research continues with some encouraging results, the industry is focused on the opportunity such drugs may offer. Not just for the clinically depressed and anxious, but as another tool to improve general wellbeing.

“Individuals dealing with a range of mental-health conditions are having varying results with antidepressants, and many are looking for alternatives,” Schlidt said. “We believe that psychedelics represent a paradigm shift in psychiatry and could provide safer and more effective treatment options.”

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