Executive Order Sparks New Phase for Psychedelic Biotech, but Risks Remain

Market reacts positively

The EO was taken as a major validation signal for market watchers.

Stocks surged leading up to the announcement, responding to April 16 reports that the president was preparing an EO; gains extended into the days after the news was officially released.

Enveric Biosciences (NASDAQ:ENVB), which focuses on psychedelic-derived neuropsychiatric therapies, experienced an astonishing 100 percent gain in its share price. Psyence Biomedical (NASDAQ:PBM), a company developing non-synthetic psilocybin-based psychedelic medicines, rose 111 percent.

The AdvisorShares Psychedelics ETF (ARCA:PSIL), an actively managed fund tracking companies in the space, rose as much as 19.88 percent this week from its closing price on April 17.

Ahrens, who manages PSIL, called the executive action “a pivotal moment for psychedelic medicine,” citing a rare convergence of clinical progress, policy support and urgent unmet mental health needs.

“I think it's a true repricing,” said Ahrens. “I'm almost surprised that it wasn’t even more of a move than it was.”

Part of that conviction comes from how far the sector has fallen. As a group, these stocks have had a “rather terrible” performance since 2022, leaving ample room for upside even after the recent bounce.

While markets responded with enthusiasm, it is crucial to clarify the EO’s actual capabilities.

The order focuses on research and review to create a faster federal pathway for psychedelics in clinical development within the existing legal framework. It does not legalize psychedelics broadly or reschedule them.

It grants Food and Drug Administration (FDA) review priority for psychedelic drugs that meet the specific criteria, like those with breakthrough therapy designation. There is a particular focus on ibogaine treatments for veterans with PTSD.

Additionally, the Department of Health and Human Services (HHS) has been directed to provide US$50 million in funding to match state investments in psychedelics research programs in Texas, Arizona, New Jersey, Indiana, Missouri, New Hampshire, Massachusetts and New Mexico.

Finally, the Department of Justice, Department of Veterans Affairs, HHS and FDA have been told to coordinate on labeling and scheduling issues so approved treatments can seamlessly move through the system.

Practical impact and broader policy implications

This is a pivotal policy shift that materially improves the outlook for psychedelics companies.

The practical impact, according to Ahrens, is a shortening of regulatory timelines for programs that are already in the pipeline, which could feed directly into M&A activity in the sector.

As psychedelics programs move closer to Phase 3 and eventual approval, they become ideal acquisition targets.

“We now invest a little bit … in Johnson & Johnson (NYSE:JNJ) and AbbVie (NYSE:ABBV), because they both very famously acquired psychedelics companies,” Ahrens noted.

In other words, the EO could help define the next wave of pipeline deals for Big Pharma.

While the EO is formally centered on ibogaine, Ahrens said investors are rightfully treating it as a “read through” for the broader psychedelics space, particularly psilocybin, ketamine and MDMA.

This stance is further supported by the administration’s move to reclassify cannabis for licensed medical and state‑approved dispensaries, as well as the attorney general’s call for a hearing to consider reclassifying all cannabis.

“Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF) welcomes this decisive action to more closely align federal policy with current medical practice and state laws,” said CEO Kim Rivers in an emailed statement.

“Rescheduling medical marijuana to Schedule III opens the door for more robust research, provides a pathway for registration, and removes the punitive tax burden imposed by Section 280E of the tax code.”

“We believe the full impact of rescheduling remains substantially under-priced, with plenty of upside as the certainty ... materializes,” added Frederico Gomes, director of life science institutional research at ATB Cormark Capital Markets.

Taken together, these policy moves suggest an increasing openness to alternative medicines when they are channeled through a medical, data‑driven framework.

Limitations and remaining investment risks

However, the impact of the order has its limitations. “These psychedelics companies are real biotech companies, and they trade based on their intellectual property and real treatments,” said Ahrens. “We have the White House’s full support in a directive through an EO to fast track those things, and this is just a first step.”

Compared to cannabis, where banking, listing and federal vs. state law issues dominate, Ahrens explained that micro- and small-cap psychedelic stocks are pre-profit and extremely volatile, with fortunes hinging on clinical trial outcomes. As the FDA pathway is accelerated, they might get fast tracked for failure just as much as fast tracked for approval.

Noting the potential for concentration, Ahrens recommended that investors consider actively managed psychedelics exchange-traded funds as vehicles for accessing the space.

“Anytime you’re investing in micro-cap stocks, primarily biotech-related and psychedelic-related, it should only be a small part of someone’s portfolio, and they should understand the risks,” he cautioned.

PSIL is heavily weighted in its top five holdings, but holds more than 25 names, allowing some room to actively trade around volatility.

Investor takeaway

The White House’s new EO doesn’t magically de-risk psychedelic drug development, but it does reshape the playing field, turning a niche, struggling corner of biotech into a policy-backed, high-upside, high-volatility bet on the future of mental health treatment.