A Cannabis Investor's Introduction To Opportunities In Psychedelics

By David N. Feldman and Courtney Barnes

Cannabis investors, for the most part, have yet to start focusing on psychedelics, but should they? 

Denver started it all with its milestone decision in 2019, making the arrest of adults engaging in noncommercial activity with psilocybin the city’s lowest law enforcement priority. Since then, over 25 other cities have followed suit deprioritizing the prosecution of offenses involving psilocybin and other naturally produced psychedelic compounds. Oregon and Colorado also have legalized some therapeutic uses of psilocybin at the state level (while psychedelics remain federally illegal), and despite some disappointments in 2023, there were over 50 pieces of legislation spanning across 20 states introduced that included the word “psychedelic.” In addition, dozens of companies planning for FDA approval have undertaken clinical research on the potential therapeutic benefit of a variety of psychedelics. Many of these companies have gone public, including over a dozen traded on the Nasdaq or NYSE, which as we know do not currently allow the listing of US plant-touching cannabis companies.

Many clinics also have begun facilitating “off label” prescriptions of the FDA-approved drug ketamine, legal to be used as an anesthetic, to treat depression and related ailments. In addition, we have seen a rise of offshore psychedelic retreats from Peru to Mexico to Costa Rica, some with US owners, partners, or investors, offering attendees a variety of experiences and pathways to wellness.

Some of those involved in cannabis, when asked about psychedelics investing, just are “not interested in learning a new industry” or express hesitation in entering another challenging arena. Others are starting to expand, such as a number of cannabis media outlets and conferences that have started covering psychedelics issues and developments. Many others continue to watch from the sidelines. 

In an effort to spark exploration – or at least conversation – in this truly limitless nascent space, here’s a little compare and contrast for cannabis investors and executives who are psychedelics-curious:

1. The psychedelic movement is focused on therapeutics (mostly). While cannabis legalization at the state level started as a medical product, a driving force has been legalization for recreational use. The dangers appear to be low and the desire high. In contrast, the primary impetus behind legalization and regulation in the psychedelic world is treating mental illnesses, while the drive for legal recreational use is secondary. 

2. The psychedelics movement includes multiple lanes for fully legal products. Until Congress, the courts, or the federal government acts to delineate legal pathways for production and sale, cannabis will remain federally illegal for most intents and purposes – even if rescheduled as expected. And despite some fits and starts, it does not seem likely that we will see Congressional or government action on legalization anytime soon. Due to federal illegality, investors and funds are sometimes restricted from investing in plant-touching cannabis businesses (and those businesses remain restricted from certain stock exchange listings as noted above). In psychedelics, investing in ketamine businesses, drug development companies, or even some offshore retreats, is an investment that is federally legal. As a result, a number of mainstream funds and institutions, in addition to a handful of funds established to invest in the space, have provided capital to these companies. 

3. Psychedelics had a lousy year on the fundraising side. Despite the potential, the slow pace of drug development and a downward trend in biotech stocks generally has negatively impacted investor interest. This matches the reverse hockey stick valuations that cannabis companies have faced in the last year or so. As with cannabis, this dramatic drop in valuations creates added risk as well as a potential opportunity. Some distressed deals and mergers are being completed.

4. The psychedelics industry expects certain pending developments to re-energize investing and M&A. The cannabis industry is awaiting the DEA’s decision on rescheduling cannabis, which most expect to occur (though not clear when). Many believe this will open new investment and M&A activity into the space, if not quite the floodgates. The psychedelics world is awaiting the first FDA approval of a new psychedelic-based drug application that would treat PTSD with MDMA, which could happen as soon as this year. That approval is similarly expected to meaningfully expand investment, M&A and valuations. So, it appears both industries are headed for a turnaround in the near future.

If you're interested in learning more about psychedelics and cannabis, email us at info@feldmanlegaladvisors.com.