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Are Psychedelics a Good Investment? What You Need to Know

Investors see promise in the field of psychedelic medicine for mental health, but profits are a ways away.

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Psychedelic companies have raised hundreds of millions of dollars to fund research into psychedelic medicine. And with the psychedelic market projected to reach $6.85 billion by 2027, the sector is attracting growing venture capital investments.

Psychedelics for depression and anxiety have become more popular in the last few years. But psychedelic companies still need to demonstrate they have a viable business model. From the long-term investing perspective, a company must become profitable for an investment to make any money.

"Investors have different types of risk acceptance, so it's critical for us to be transparent and manage their expectations," says Ken Belotsky, a Partner at Negev Capital, an investment firm focused on companies developing novel psychedelic medications for various mental health issues. "Numerous research results have been exciting, and there's no doubt this is a really promising sector. Like any investment, however, risk and patience and conviction are indispensable in this space."

Related: The Psychedelics Market Continues to Thrive with No End In Sight

Psychedelics and mental health

Currently, the majority of psychedelic medicines companies are not profitable. There are many reasons for this: Rigorous, costly research, regulatory hurdles, and lack of social acceptance and cultural change. Still, many psychedelic start-ups allocate massive money in the infancy stage of their businesses. Why? Studies show that psychedelics can improve mental health.

A 2021 study by the Centre for Psychedelic Research at Imperial College London points to encouraging results after participants showed improvement in all mental health metrics, including better results in life satisfaction and mindfulness.

The driving force behind the excitement is the use of psychedelic substances while leveraging technology to treat psychiatric diseases, especially "treatment-resistant depression" and post-traumatic stress disorder (PTSD). According to the science journal Nature, a record of 17 trials was ongoing in 2021, primarily into psilocybin.

"On mental health issues, many fronts are open for us to figure out and tailor molecules, and this is the exciting part," says Dr. Bob Dagher, Enveric Biosciences Chief Medical Officer. Enveric Biosciences uses AI technology to employ machine-learning technology to evaluate higher-likelihood molecules to address conditions like cancer-related distress, PTSD, and other central nervous systems (CNS) indications.

"We have developed an engine that creates new molecules by designing and optimizing genetics for target profiles. Much of this work is initially psychedelic inspired and could pave the way for a plan of action with the potential to transform what we define as a therapeutic benefit in the future," Dagher says.

Public opinion about psychedelics

Public opinion is also shifting. A 2017 study found that 72 percent of Americans backed the legalization of specific psychedelic therapies, with just 12 percent opposing the use of these substances. Last year, voters in the District of Columbia decided to decriminalize the adult use of psilocybin mushrooms, while Oregon has already moved forward with legislation under medical use.

"Over the last two years of hosting events, we've seen an ever-increasing curiosity and interest to take part in early-stage investments in the psychedelic landscape," says Connor Haslam, CEO of Microdose Psychedelic Insights." By hosting top-notch panels in our events, we aim to build a knowledgeable community while democratizing the investing space in ways that were not possible just a short time ago."

The importance of exploring new treatment options for mental health disorders should not be understated. Over 300 million people worldwide are estimated to struggle with depression, and a similar number of people are thought to live with anxiety, According to the World Health Organization (WHO). Existing treatment options for mental health conditions have failed to reduce the number of severe cases. Indeed, 17 percent of the American adult population reported a major depressive episode in 2020.

Interest from investors

"Investors and researchers alike are eager to understand the similarities between psilocybin and LSD," said MindMed CEO Robert Barrow after results from their multiple ongoing studies on psilocybin therapies in 2021. "Learning how these substances compare and interact with other drugs helps us ensure that our treatment programs are as effective and efficient as possible."

Last month, MindBio completed the first phase of Clinical Trials, the most extensive safety study of its kind that has ever been completed under a randomized, double-blind, placebo-controlled discipline. The company aims to use the results as it seeks the development of MindBio's intellectual property and progression towards the commercialization of treatments.

"The main issue is that the need for innovative mental health treatments is excitingly urgent, yet the drug development, regulatory approvals, and clinical trials process can be slow," says Justin Hanka, cofounder of MindBio Therapeutics." "Psychedelic medicine offers a substantial change from the available treatment options and helps us redefine care when it comes to debilitating mental health conditions."

In the latest guidance titled "Psychedelic drugs: a market poised to take off," KPMG advisory recommends that major pharma companies considering psychedelics should start doing their homework now. The case study advises established companies in the pharma industry to analyze the market and identify promising psychedelic companies on their radar.

For the winners of this emerging asset space, the spoils will be immense. As the psychedelics industry matures, experts remind investors to be ready for the treacherous terrain of regulatory approvals and volatile asset markets.

"It is a long process to get new medical treatments approved," Hanka says. "In the early stages, it requires robust financing to get through human clinical trials and credible research, so you need a talented team of scientists, advisors, and investors to help lead these types of biotech companies through the commercialization process."