How to Invest in Psychedelics

What do psychedelics companies do?

The Canadian capital markets have welcomed the possibilities attached to psychedelics, and the country is now home a significant number of publicly listed companies. Many can be found on the Canadian Securities Exchange (CSE), which has long been a hotbed for up-and-coming companies in growth-stage areas — when the psychedelics market erupted onto the scene back in 2020 it didn't take long for the exchange to start listing psychedelics stocks.

However, the CSE has stressed that investors need to keep an eye on disclosures from companies whose businesses may not be universally legal. This is something the exchange became acquainted with during the cannabis boom — at that time, it required that cannabis companies fill out detailed forms indicating the risks associated with their businesses.

That's not the only comparison that has been made between the psychedelics and cannabis markets, and in some ways the two are similar. But the psychedelics space is actually more akin to the pharmaceutical industry — psychedelics companies are taking an established medical approach to their work, which means that successful clinical trials that move products closer to commercial viability can be crucial catalysts for share price movements.

The connection between the psychedelics and pharmaceutical spaces was reinforced with the launch of the first psychedelics exchange-traded fund (ETF), the Horizons Psychedelic Stock Index ETF (NEO:PSYK,OTCMKTS:HPSYF). While it includes mostly psychedelics-focused companies, it also has some exposure to big-name pharma stocks doing research on psychedelics. Since the launch of Horizons, a few other psychedelics-focused ETFs have come to the market, such as the AdvisorShares Psychedelics ETF (ARCA:PSIL), which focuses exclusively on psychedelics stocks. The Elemental Advisors ETF, which included neurology pharmaceutical stocks, had a brief run before its liquidation in early 2023.

The wellness and improvement trend in the space is widespread too, with many psychedelic drug investment stories relating to modern clinics offering novel treatments for people struggling with mental health issues. In design, these clinics offer a fresh method of treatment for patients.

Is now a good time to invest in psychedelics stocks?

The psychedelics industry enjoyed a wave of early hype, but what does the future hold? A 2023 outlook report from research firm InsightAce Analytic shows that the psychedelics therapy market was worth US$3.94 billion in 2022 and is expected to grow at a compound annual rate of 14.92 percent over the next decade to reach US$13.29 billion by 2031.

This growth is expected to be driven by rising rates of mental health disorders such as depression and anxiety, as well as psychological drug dependence — conditions that may need alternative therapies. For now, North America is the regional hot spot for the psychedelics market; however, the Asia-Pacific region is set to experience significant growth in the forecast period due to growing mental health awareness and expanding healthcare infrastructure.

A few of the rising stars in the psychedelics space include Mind Medicine (NEO:MMED,NASDAQ:MNMD), ATAI Life Sciences (NASDAQ:ATAI), Psybio Therapeutics (TSXV:PSYB,OTC Pink:PSYBF), Cybin (NEO:CYBN,NYSE:CYBN), Compass Pathways (NASDAQ:CMPS) and Numinus Wellness (TSXV:NUMI,OTCQX:NUMIF).

The majority have put forward business models based on psychedelic research for novel medicines, which like established pharmaceutical products will require intense clinical trials and health agency approvals. Many of these large companies have also been able to list on major American exchanges like the NYSE and NASDAQ.

Cody Shandraw, managing partner at Ambria Capital, sees late 2024 as a pivotal moment on the horizon for psychedelics companies and the market as a whole. By that point, there will be several firms positioned to release mid-stage clinical trial results. “That’s also when many expect some news from (MAPS) on MDMA, or ecstasy, and its attempt to get U.S. Food and Drug Administration approval for its use to treat post-traumatic stress disorder,” he told the Financial Post.

Time will tell which companies survive what Shandraw referred to as "the shakeout stage."

The names above represent only a few key psychedelics players; for a more complete look at the sector, check out INN's articles Psychedelics Stocks to Watch and Psychedelics Market Forecast.