Navigating the Psychedelics Sector

Should You Bet The Pharm?

Psychedelics are gaining traction as a potentially revolutionary area of the broader pharmaceutical market — particularly in relation to the treatment of mental health ailments.

Yet, many challenges lie ahead both medicinally and investment-wise in 2024 and beyond.

Over the next few moments, we’ll be exploring many of those challenges along with ways to invest in the emerging psychedelic sector.

It’s a well-known fact that mental illness is a major issue in the United States, affecting some 47 million Americans — or around one-in-five US adults.

We can, but don’t need to, turn to the media to see the worst effects of mental illness in the United States. The horrific stories and mass tragedies we’re bearing witness to on a seemingly daily basis are truly the most extreme cases… and they give us all pause.

Yet, the bottom line is that mental illness — whether severe or in lesser cases of depression, anxiety, or PTSD — is highly prevalent in America and across the world.

The global antidepressant market alone was worth $15 billion in 2020, and is expected to grow to over $21 billion by 2030.

As a result, a major push is happening in the psychedelics space with a particular focus on the hallucinogen “psilocybin”aka, “magic mushrooms” — which scientists believe holds potential in the treatment of neurological and psychiatric disorders within the broader scope of mental illness.

While still at an early stage, researchers at Johns Hopkins University — an early adopter of psilocybin research in the US — are finding psilocybin to be effective in alleviating the symptoms of PTSD, depression, and anxiety.

The study marks the first time in 50 years that the US federal government has granted researchers funding to study the therapeutic potential of psilocybin.


Psilocybin in America

Originating from indigenous cultures who’ve used magic mushrooms in sacred ceremonies for hundreds or thousands of years, psilocybin has long been used recreationally, yet illegally, in the United States.

Psilocybin — which is federally illegal in America as a Schedule I substance under the Controlled Substances Act — comes from certain types of mushrooms that are indigenous to tropical and subtropical regions of South America, Mexico, and the United States.

Despite its Schedule I status, psilocybin measures were on the ballot in two US states in the 2022 midterms: Colorado and Oregon.

The ballot measures are somewhat similar to recreational marijuana measures, which have now been passed in nearly half of US states. Cannabis is also listed as a Schedule I drug in the US, but is under review by the DEA for rescheduling.

Voters in Colorado narrowly approved a ballot measure legalizing the use of psilocybin and psilocin — two psychedelic compounds found in magic mushrooms.

The initiative allows for the use of psilocybin at state-regulated centers under the supervision of licensed facilitators.

It also legalizes personal private use, growing, and sharing of psilocybin and psilocin, as well as three additional psychedelic compounds — DMT, ibogaine, and mescaline — by adults over the age of 21.

In Oregon, the vote was split.

Going back a couple years, in 2020, Oregon became the first US state to legalize psilocybin for personal use for those over age 21.

The 2020 psilocybin measure gave the Oregon Health Authority the power to license and regulate the manufacturing, transportation, delivery, sale, and purchase of psilocybin products and the provision of psilocybin treatment services.

Fast-forward to the 2022 midterms, Oregonians were tasked with voting on Measure 109 — a proposed ban on the rollout of psilocybin treatment centers in the state.

While most of Oregon’s rural counties approved the ban, 17 of Oregon’s 20 most populous cities rejected the ban — paving the way for psilocybin production and treatment by authorized facilities in those cities along with 11 Oregon counties.

Following the split vote, supporters of psilocybin services noted therapy with the hallucinogen will become locally available to around 3 million of Oregon’s 4.2 million residents beginning in 2023.

Reminiscent of the early days of medical and recreational marijuana ballot measures, all eyes will undoubtedly be on these two states over the next few years as the new laws go into effect and as treatment facilities open their doors to the public.


US & Canada: Leading Psilocybin Research

Ancient civilizations revered magic mushrooms as spiritual guides… counterculture embraced them for their ability to change consciousness… governments demonized them as psychosis-inducing scourges.

Yet, today, after being disregarded for decades as too politically charged for serious scientific study, psychedelic compounds are poised to enter the mainstream of modern medicine as treatments for intractable mental illness.

In addition to Johns Hopkins, psilocybin research is currently underway at several prestigious US universities, including New York University, Yale, Uconn, and the University of Texas at Austin.

In Canada, Toronto’s Centre for Addiction and Mental Health (CAMH) recently received the first Canadian federal grant for the study of psilocybin to determine its potential for alleviating depression without the psychedelic side effects — commonly referred to as “the trip” or “shrooming.”

Dr. Ishrat Husain, lead investigator of the study, stated, “There has been a growing interest and body of knowledge regarding the use of psychedelic drugs for the treatment of mental illness and addictions.”

Husain noted that clinical trials suggest psilocybin, combined with intensive psychotherapy, can produce “sustained antidepressant effects” in those living with severe depression.

Although many more years, and perhaps decades, of research will be needed to fully understand the benefits and risks of psilocybin, a path is currently being forged by some of the brightest medical minds in North America to advance potential drug therapies from psilocybin’s many unique compounds.

That progress is creating an intriguing set of investment opportunities as varied as the drugs within the psychedelics sphere.

And although a degree of investor caution is duly warranted, we view the psychedelics market as a nascent industry with exceptionally strong growth potential going forward.


What Are the Best Psychedelic Stocks?

While the psychedelics space is moving forward, really, for the first time in US history… the investment space is littered with landmines that can take unwary investors on a bad trip of their own.

Data Bridge Market Research estimates the global psychedelic drugs market will reach $6.4 billion by 2029. InsightAce Analytics sees the market reaching $8.3 billion by 2028.

So the growth potential is certainly there.

Yet, as with any nascent sector, investment in the space carries with it an elevated risk factor.

Many of the smaller, poorly funded companies in the sector will cease to exist over the coming years as studies go awry and as treasuries are depleted. That’s just the nature of the game in any newly-emerging sector.

And nearly all of the stocks in the sector are currently trading at or near their 52-week lows.

For that reason, our primary focus is on the more established, better funded sector players as these companies present far better odds of bringing viable drug therapies to market that will shape the future of the space.

Here are a few names we believe merit further investment attention.


Compass Pathways (NASDAQ: CMPS)

Compass Pathways is researching how COMP360 psilocybin — the company’s proprietary formulation of synthetic psilocybin — therapy could help people with treatment-resistant depression (TRD).

COMP360 has been designated as a Breakthrough Therapy by the US Food & Drug Administration and has received Innovative Licensing & Access Pathway designation in the UK for TRD.

The company recently completed a phase 2b trial of COMP360 psilocybin therapy for TRD — the largest study of its kind in the world.

The company’s Chief Medical Officer, Dr. Guy Goodwin, commented via press release:

“The publication of our COMP360 psilocybin therapy study in the most prestigious peer-reviewed medical journal in the world is a proud moment for everyone involved. We saw positive results in a particularly difficult to treat group of patients, and the highest dose of COMP360 psilocybin had the greatest impact on people's depression. This suggests that COMP360 psilocybin has a true pharmacological effect, a finding that is critical for it to be recognised as a new treatment option in the future. We look forward to starting our phase 3 programme later this year, moving us closer to providing COMP360 psilocybin with psychological support for patients who desperately need it.”

It is also in phase 2 clinical trials with COMP360 for PTSD, for which an initial data readout showed that treatment was “well-tolerated and the safety profile was as expected, with no treatment emergent serious adverse events recorded.”

Compass Pathways will certainly be one-to-watch in the psychedelics sector over the coming quarters as it proceeds with its human trials.


Cybin Inc. (NYSE-American: CYBN)


Cybin Inc. is focused on progressing Psychedelics-to-Therapeutics by engineering proprietary drug discovery platforms, innovative drug delivery systems, novel formulation approaches, and treatment regimens for mental health disorders.

The company has concluded a phase 2 human trial of CYB003 — Cybin’s first novel psilocybin analog — for the treatment of major depressive disorder (MDD) in 2023 and is heading into phase 3 in mid-2024.

The company’s CEO, Doug Drysdale, commented via press release:

““The strength of CYB003’s clinical profile to date, which showed that at four months after dosing, across the two doses, 60% of patients receiving 12mg and 75% of patients receiving 16mg of CYB003 achieved remission from depression symptoms. With positive durability data demonstrating sustained effects up to at least four months, BTD, and alignment with the FDA on our Phase 3 plan, we are positioned to move quickly to progress the program and bring relief and treatment alternatives to people who are desperately waiting,””

The company is also entering phase 2 for CYB004, its proprietary DMT molecule in development for the treatment of general anxiety disorder (GAD).

It is well-funded, having raised $150 million in Q1 2024.


Psychedelic Investment Funds

For investors seeking exposure to the psychedelics market without having to select individual stocks — a psychedelics-focused ETF (Exchange Traded Fund) may be the perfect vehicle.

Debuting in September 2021, the AdvisorShares Psychedelics ETF (NYSE: PSIL) offers investors a new way to gain exposure to this emerging healthcare sector.

PSIL is composed of a portfolio of companies involved in the research, development, production, and usage of psychedelics to address medical conditions in pharmacological applications in multiple jurisdictions.

The fund’s top-five holdings are:

  • Mind Medicine
  • Cybin
  • Compass Pathways
  • Atai Life Sciences
  • Vistagen Therapeutics

As noted, most of the stocks in the psychedelics sphere are trading at or near their 52-week lows. PSIL is no exception.

The fund commenced trading in 2021 above $10 and is now trading slightly above its 52-week low at $1.25 per share.

One of the key benefits of PSIL is that its value is not dependent on the results of a single clinical trial or even on the success of a single company.

By design, risk is spread out among a variety of sector-focused companies — all at varying points on the risk-reward curve.

Additionally, the fund’s managers are able to make real-time adjustments to its holdings as the psychedelics industry and the individual companies within it evolve.


Are Psychedelic Stocks a Good Investment?

Paralleling the cannabis sector, there are presently scores of publicly traded companies involved in the psychedelics space — many of which trade on US and Canadian exchanges.

Likewise and, again, with parallels to the marijuana space, most of the stocks within the psychedelics arena have been on a wild roller coaster ride these last few years with the vast majority down significantly from recent highs.

Heightened volatility in psilocybin-focused stocks is expected to continue over the next few years and perhaps longer — a key point that should be factored in by speculators as they go through the process of weighing investment decisions in the space.

As a nascent industry with many more questions than answers at this early stage, investors would be wise to exercise caution and patience as those unknowns are answered in due time.

Although a bit more complex, the psychedelics space is, for all intents and purposes, not much different than the dot-com boom and bust of the late-90s / early-2000s.

In the Wild West days of the dot-coms, knowledge was gathered over time, allowing investors to gain a keen understanding of the market’s dynamics and, subsequently, an ability to better determine which companies were going to lead and which companies were going to cease to exist.

That same scenario is unfolding now for psychedelics.

And, as touched upon earlier, the parallels to the cannabis space are unmistakable, which, to this day, remains rife with heightened volatility almost a full decade following the initial period of investment euphoria.

Psychedelics stocks enjoyed their initial euphoria-fueled run back in 2020. Yet, that mania was quickly replaced by overall poor stock performances in 2021 followed by even more fallout in 2022.

Of course, that’s not entirely a bad thing — especially for newcomers to the space — as many of the so-called pretenders have since been exposed and rooted out.

Another silver lining is that most, if not all, of the stocks in the psychedelics sector — including the ones discussed here — are currently trading within shooting distance of their 52-week lows.

So at a very minimum, today’s speculators are not jumping in at the height of a mania-fueled upsurge where stock values can go running off a cliff like lemmings.

Instead, newcomers to the space are entering much calmer waters with an opportunity to slowly accumulate (or even paper trade) the best names in the sector… and in most cases, at far lower price points than in prior quarters.

So while we certainly wouldn’t recommend ‘betting the pharm’… today’s psychedelics arena does present investors with an intriguing opportunity to participate in a niche market with the very real potential to go mainstream in the coming years.

Investors with the requisite risk tolerance will be well-advised to navigate the space with a long-term investment approach.

Our founder, Nick Hodge, was one of the first to publish a cannabis-related investment newsletter as far back as 2017. He’s helped finance several early stage cannabis companies and covers related sectors, including psychedelics, in two of his premium publications.

In Foundational Profits, he covers them from a long-term macro perspective and invests via ETFs. You can check out the most recent issue here.

In Hodge Family Office, he speculates on individual cannabis and psychedelic companies. In 2023, he and his readers profited when Mindset Pharma was taken out by Otsuka. In 2024, he successfully closed positions on both cannabis and psychedelic stocks, including Gold Flora and Atai Life Sciences. Click here to learn more about Hodge Family Office.

Right now is an excellent time to begin conducting your own due diligence as the early groundwork is laid for what may prove to be a very lucrative sector in the years to come.

From a more altruistic perspective, hopefully we’re on the cusp of a brand new class of drug therapies that will aid in the treatment of various forms of mental illness without the detrimental side effects typically associated with traditional pharmaceuticals.

Caveat emptor!

— Daily Profit Cycle Research