Are Psychedelics the New Weed Stocks?

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It may be hard to imagine LSD and ketamines openly traded on the stock exchange and readily available by prescription, but the same could have been said about cannabis stocks just 20 years ago. The argument that a medicinal psychedelic ETF in 2021 is treading the same path as a cannabis ETF did 2 decades ago is encouraging investors to give psychedelic stocks a second look. 

Psychedelic stocks may be weed stocks' younger sibling

The parallels between the growth of the medical cannabis market and that of psychedelics are hard to ignore. Both were once dismissed as the preserve of druggies and dropouts, but in the past 20 years, new research revealed their respective abilities to treat conditions that traditional pharmaceuticals cannot reach. 

The efficacy of psychedelics in treating anxiety,¹ addiction,² depression,³ PTSD,⁴ and OCD⁵ has been proven in a number of studies, at a time when the stigma surrounding mental health conditions is falling away; COVID-19 fueled an approximately fourfold rise in depression and anxiety in the US and doubled the rates in the UK⁶; and frustration is growing at the limitations of current medication for mental health disorders. Similarly, medical cannabis has been shown to successfully treat epilepsy, Parkinson's disease, and chronic pain, while the opioid crisis laid bare the paucity of pain relief options.⁷

In both cases, although there is hope for the eventual legalization of recreational cannabis and psychedelics use, the primary driver for the market is medical purposes.⁸

Psychedelics are two steps behind medical cannabis

Psychedelics stocks are treading the same path as medical weed stocks. Medical cannabis companies mostly began trading in Canada rather than in the US, and moved from smaller exchanges like the TSX to larger ones like the CSE. 

Psychedelics stocks are following suit, with most publicly listed companies trading on the TSX, some on the new NEO exchange, and a handful listing on the CSE. So far 5 psychedelics companies, including MindMed, Compass Pathways, and ATAI Life Sciences, have jumped to the NASDAQ, and Cybin is trading on NYSE American.⁹

Some movers and shakers of the cannabis industry, like Bruce Linton, founder of cannabis enterprise Canopy Growth, have also been among the first to get involved in the psychedelics industry.

Medical cannabis led the way

As the first previously banned drug to be legalized, medical cannabis is a trailblazer. It's currently legalized for medical purposes in 37 states plus Washington, D.C.,¹⁰ as well as in over a dozen countries,¹¹ and there are hopes that the Biden administration will legalize medical marijuana at a federal level.¹²

As the legal climate changed, so did public opinion, and together they helped unstopper funding for cannabis stocks. The market shows no signs of faltering: 2021 brought 212 deals so far in the marijuana sector, compared with 53 by the same point in 2020.¹³ It's anticipated that the global legal cannabis market will reach $92.5 billion by 2028 at a compound annual growth rate (CAGR) of 26.3%,¹⁴ while legal sales of cannabis in the US grew 71% to $18.3 billion in 2020.¹⁵

Meanwhile, a solid cannabis infrastructure has been under construction. Companies have been merging and forming partnerships to deliver sustainable, high quality weed production; a reliable supply chain; new delivery methods; standardized dosing; and a framework of clinics and dispensaries for consumers to access medical marijuana. 

The unfolding story of psychedelics has a familiar ring 

Psychedelics are a different kind of pharma stock, so it helps that cannabis stocks already educated the public about them. Investors may still be nervous about placing money in stocks that require regulatory approval, but the success of the weed market removes some level of anxiety. 

The wave of research, R&D investment, and patent applications for psychedelics stocks is also reminiscent of the early days of weed stocks. The number of trials into psychedelic substances jumped from 3 in 2015 to 17 in 2020 and 12 so far in 2021. 

(Source as of 01/27/2021: https://www.nature.com/articles/d41586-021-00187-9)

Psychedelics stocks are investing heavily in R&D to develop new treatments, explore dosage, and verify the results and side effects of psychedelics-based treatment, which in turn is furthering market growth.¹⁶ Data Bridge Market Research forecasts that the market will increase from $2.8 million in 2020 to around $7.5 million by 2028, at a CAGR of 13.3%.¹⁷

Medical cannabis also set the stage for the legalization of psychedelics. At this point, only Oregon has legalized psilocybin for therapeutic use¹⁸ and isolated cities have decriminalized it.¹⁹ However, there is legislation on the books to legalize psychedelics in California²⁰ and fund research into their use in Texas²¹; it's anticipated that Michigan will soon legalize psilocybin²²; and Canada is swiftly approaching full acceptance of psychedelics for medical purposes.²³

Perhaps because the public has been primed by the rise of medical marijuana, general support is ramping up fast. In the US, while 42% of people say they would meet a therapist to address their mental health, 24% would consider using psychedelic-assisted therapies.²⁴ 55% of the population of the UK supports legalizing and opening up access to psychedelics,²⁵ and in Ireland, 55% of people would take them if recommended by their doctor.²⁶

Meanwhile, psychedelics companies are building a nascent infrastructure that echoes that for medical marijuana. Numinus recently added a second fully-licensed research lab to expand the testing and R&D services it provides to companies developing psychedelic-assisted therapeutics.²⁷ Medical-grade mushroom production business Red Light Holland and medical cannabis company Creso Pharma formed a partnership to expand the production, marketing, and sale of both medical cannabis and pharmaceutical-grade psychedelics in America, Canada, and Europe.²⁸ 

On the treatment end, Numinus is also increasing its network of community clinics in Canada to deliver psychedelic-based treatments²⁹; Compass Pathways is preparing to set up 3,800 psychedelic treatment centers across Europe and the US³⁰; and Field Trip Health plans to expand from 6 ketamine-assisted therapy centers to 75 by 2024.³¹

Psychedelics stocks are learning the right lessons from medical marijuana

The relatively smooth growth of the market for psychedelics-based medical treatments may owe a lot to medical cannabis trailblazers. For investors who already bought shares in medical cannabis stocks or a weed ETF, a medicinal psychedelics ETF could be a way to broaden your portfolio within a similar market, while helping mitigate your exposure to risk by spreading your investment across a number of leading psychedelics stocks. 

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Defiance Next Gen Altered Experience ETF (PSY)
Investing involves risk. Principal loss is possible. As an ETF, the fund may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. The Fund is not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index. 

A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. Specifically, the Index (and as a result, the Fund) is expected to be concentrated in Psychedelics Healthcare and Medical Cannabis companies. Such companies may depend largely on the government regulation and their profitability can be significantly affected by restriction on government reimbursements for medical expenses, rising costs of products and services, pricing pressure, limited product lines, intellectual property rights, and long and costly government product approval processes. The investments rely on U.S. and Canadian regulation of psychedelic, healthcare and cannabis, and the fund could be adversely affected by changes in these regulations. 

The Fund will not invest directly in or hold ownership in any companies that engage in cannabis- or psychedelics-related business unless permitted by national and local laws of the relevant jurisdiction, including U.S. federal and state laws. Accordingly, the Fund does not currently invest (directly or indirectly) in companies located in the United States if their cannabis- or psychedelics-related business activities are illegal under U.S. federal law, even if such activities are legal under state law. In the United States and Canada, the medical and recreational use of certain psychedelic drugs, including psilocybin, is currently illegal. There is no guarantee that psychedelic drugs or psychedelic inspired drugs will ever be approved as medicines in either jurisdiction.

The Fund is considered to be non-diversified, so it may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies. 

PSY is new with a limited operating history

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Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

PSY seeks to track the BITA Medical Psychedelics, Cannabis, and Ketamine Index is a rules-based index that tracks the performance of a portfolio of companies listed on North American Exchanges conducting legal activities under the national laws of the applicable country related to medical psychedelics, medical cannabis, cannabis pharmaceuticals and cannabidiol (“CBD”) derivatives, and ketamine. The index is owned, calculated, administered and disseminated by BITA GmbH. It is not possible to invest directly in an index.

PSY is distributed by Foreside Fund Services, LLC

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

¹“Safety and efficacy of lysergic acid diethylamide-assisted psychotherapy for anxiety associated with life-threatening diseases,” Gasser et al (2014) J Nerv Ment Dis 202: 513–520.

²“Psilocybin-assisted treatment for alcohol dependence: a proof-of-concept study,” Bogenschutz et al (2015). J Psychopharmacol 29: 289–299.

³“Antidepressant effects of a single dose of ayahuasca in patients with recurrent depression: a preliminary report,“ Osorio et al (2015) Rev Bras Psiquiatr 37: 13–20; “Antidepressant effects of a single dose of ayahuasca in patients with recurrent depression: a SPECT study,” Sanches et al (2016) J Clin Psychopharmacol 36: 77–81.

⁴“Safety, tolerability, and efficacy of psilocybin in 9 patients with obsessive-compulsive disorder,” Moreno et al (2006) J Clin Psychiatry 67: 1735–1740.

⁵"Psychedelic medicine: a re-emerging therapeutic paradigm" October 6, 2015 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4592297/

⁶"COVID’s mental-health toll: how scientists are tracking a surge in depression" February 3, 2021 https://www.nature.com/articles/d41586-021-00175-z

⁷"Medical marijuana" April 10, 2020 https://www.health.harvard.edu/blog/medical-marijuana-2018011513085

⁸"Global Legal Cannabis Markets Analysis 2021-2028 by Sources (Marijuana, Hemp), End-use (Recreational, Medical), Derivatives (CBD, THC) - ResearchAndMarkets.com" September 9, 2021 https://www.businesswire.com/news/home/20210909005775/en/

⁹"A List of Psychedelic Stocks and Where They’re Traded" July 30, 2021 https://microdose.buzz/news/a-list-of-psychedelic-stocks-and-where-theyre-traded/ 

¹⁰"Marijuana legalization is sweeping the US. See every state where cannabis is legal" July 9, 2021 https://www.businessinsider.com/legal-marijuana-states-2018-1

¹¹"Worldwide Medical Cannabis Industry to 2026 - Featuring Canopy Growth, GW Pharmaceuticals and Aurora Cannabis Among Others" September 7, 2021 https://www.prnewswire.com/news-releases/worldwide-medical-cannabis-industry-to-2026---featuring-canopy-growth-gw-pharmaceuticals-and-aurora-cannabis-among-others-301370161.html

¹²"President Biden Supports States’ Right To Legalize Cannabis" April 20, 2021 https://www.forbes.com/sites/willyakowicz/2021/04/20/president-biden-supports-states-right-to-legalize-cannabis/?sh=e3c7f2f16604 

¹³"TerrAscend to buy Gage Growth for US$545M as pot M&A deals heat up" September 1, 2021 https://www.bnnbloomberg.ca/terrascend-to-buy-gage-growth-for-us-545m-as-pot-m-a-deals-heat-up-1.1646768

¹⁴"Global Legal Cannabis Markets Analysis 2021-2028 by Sources (Marijuana, Hemp), End-use (Recreational, Medical), Derivatives (CBD, THC) - ResearchAndMarkets.com" September 9, 2021 https://www.businesswire.com/news/home/20210909005775/en/ 

¹⁵"The Best Cannabis Stocks Of 2021" September 1, 2021 https://www.forbes.com/advisor/investing/best-cannabis-stocks/

¹⁶"Global $3.8 Billion Psychedelic Drugs Markets, 2016-2020 & 2021-2026 - Rising R&D Activities in Psychedelic Therapeutics" June 8, 2021 https://www.globenewswire.com/news-release/2021/06/08/2243669/28124/en/Global-3-8-Billion-Psychedelic-Drugs-Markets-2016-2020-2021-2026-Rising-R-D-Activities-in-Psychedelic-Therapeutics.html 

¹⁷"Psychedelic Drugs Market CAGR at +13.3% with Analysis of Growing Technology Trends, Industry Research, Future Growth and Size, Projection by 2028" July 14, 2021 https://www.globenewswire.com/en/news-release/2021/07/14/2263133/0/en/Psychedelic-Drugs-Market-CAGR-at-13-3-with-Analysis-of-Growing-Technology-Trends-Industry-Research-Future-Growth-and-Size-Projection-by-2028.html 

¹⁸"Lawmakers prep tweaks to Oregon’s voter-approved drug decriminalization effort" April 13, 2021 https://www.opb.org/article/2021/04/13/lawmakers-prep-tweaks-to-oregon-drug-decriminalization-effort/

¹⁹"Awaiting Awakening: States Next on the List for Psychedelic Legalization" April 21, 2021 https://thedalesreport.com/psychedelics/states-next-on-the-list-for-psychedelic-legalization/ "A Third Massachusetts City Decriminalized Psychedelics" April 23, 2021 https://www.benzinga.com/markets/cannabis/21/04/20585751/a-third-massachusetts-city-decriminalized-psychedelics

²⁰"Will California Decriminalize Drugs? California Senator Previews Coming Psychedelics Bill" June 27, 2021 https://thedalesreport.com/psychedelics/will-california-decriminalize-drugs-california-senator-previews-coming-psychedelics-bill/ 

²¹"Turn On, Tune In, Feel Better: The Rise of Psychedelic Therapy in Texas" May 14, 2021 https://www.texasmonthly.com/news-politics/psychedelic-therapy-texas/

²²"Market For Psychedelic Drugs Expected to Reach $6.9 Billion By 2027" April 14, 2021 https://www.prnewswire.com/news-releases/market-for-psychedelic-drugs-expected-to-reach-6-9-billion-by-2027--301268400.html 

²³"In Canada, psychedelics re-emerge in treatment of depression" April 16, 2021 https://medicalxpress.com/news/2021-04-canada-psychedelics-re-emerge-treatment-depression.html

²⁴"More than 80% of Americans report one or more symptoms of depression, and many have turned to substances to cope with negative emotions during COVID-19 Pandemic, according to Field Trip Health’s First Annual “State of Mind” Survey" May 18, 2021 https://www.globenewswire.com/news-release/2021/05/18/2231476/0/en/More-than-80-of-Americans-report-one-or-more-symptoms-of-depression-and-many-have-turned-to-substances-to-cope-with-negative-emotions-during-COVID-19-Pandemic-according-to-Field-Tr.html

²⁵"TDR’s Top 5 Psychedelic Developments For The Week Of June 14" June 19, 2021 https://thedalesreport.com/psychedelics/tdrs-top-5-psychedelic-developments-for-the-week-of-june-14/

²⁶"Psychedelic perceptions: mental health service user attitudes to psilocybin therapy" June 15, 2021 https://link.springer.com/article/10.1007/s11845-021-02668-2

²⁷"Numinus to expand state-of-the-art psychedelics research laboratory" March 9, 2021 https://www.newswire.ca/news-releases/numinus-to-expand-state-of-the-art-psychedelics-research-laboratory-819641899.html

²⁸"Creso Pharma and Red Light Holland Merge" June 17, 2021 https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02385462-6A1037153?access_token=83ff96335c2d45a094df02a206a39ff4

²⁹"Psychedelics Treatment Concept Numinus Wellness Inc. Aims for Aggressive Location Expansion Across Canada" March 30, 2021 https://retail-insider.com/retail-insider/2021/03/psychedelics-treatment-concept-numinus-wellness-inc-aims-for-aggressive-location-expansion-across-canada/ 

³⁰"A psychedelic drug boom in mental health treatment comes closer to reality" May 10, 2021 https://www.cnbc.com/2021/05/10/psychedelic-drug-boom-in-mental-health-treatment-nears-reality-.html

³¹"In Canada, psychedelics re-emerge in treatment of depression" April 16, 2021 https://medicalxpress.com/news/2021-04-canada-psychedelics-re-emerge-treatment-depression.html