Investing in Psychedelics, Psilocybin, or Magic Mushrooms

[Updated May 1st, 2019]

Are magic mushrooms (or psilocybin) going to be the next big investment opportunity after cannabis?  Many investors think yes. But it’s hard to invest in psychedelics (like magic mushrooms or psilocybin) because the psychedelic industry is just beginning to emerge.

Presently, only three companies (Compass Pathways, the Imperial Center for Psychedelic Research and CaaMTech) are developing formulations based on the molecules found in magic mushrooms.  Compass Pathways is focussing on creating treatment methods using pure synthetic psilocybin. According to their patent applications, CaaMTech is developing formulations that combine multiple of psilocybin derivatives, designed to preserve (or improve upon) the combinations of compounds found in naturally occurring magic mushrooms.  According to their press release, CaaMTech also appears to be developing synthetic psilocybin derivatives, such as psilacetin. Neither of these companies is publicly traded. The Imperial Center for Psychedelic Research is focused on developing medicines from psychedelic substances.

“How does one invest in the psilocybin (or magic mushroom) industry?”

(Unsatisfying) Answer: Either get creative or wait. Traditional mechanisms for investing capital in psychedelics are virtually non-existent.  Given the undisputed promise for psychedelic medicine, one could argue that the industry needs more investment opportunities. As discussed below, “bold” investors with “big fortunes” are finding ways to invest early. For everyone else, the two options are as follows: (1) wait for an investment opportunity; (2) create one by investing in R&D and intellectual property.

This article was originally published on April 18, 2019.  Since then, some “bold” investors have invested money in psychedelic research. For example, Tim Ferriss just helped launch the Imperial Center for Psychedelic Research. This is the world’s first research center dedicated to turning psychedelics into medicines. See Business InsiderSee also Tim Ferriss and PsychedelicsThe lead scientist at the center, Robin Carhart-Harris, explains that psychedelic research has “really started to gain momentum.”

Psychedelic Industry Presents Big Opportunities for Bold Investors

Recently, Bloomberg published an article about “unusual” investment opportunities for investors “with big fortunes and a taste for the exotic.” Woolley, S., “Psychedelics, Ferraris and Art: An Alternative Investment Guide Opportunities for those with big fortunes and bold tastes.”  Bloomberg (accessed April 15, 2019).  Investments in “Psychedelics” earned top billing in the article’s title.

Other journalists have discussed investments in psychedelics: “Like cannabis, wealthy investors are shoving millions of dollars into psychedelics.” See Capps, R., Rooster, Oct. 23, 2018 (accessed April 15, 2019).

According Ms. Woolley, “Weed is so 2018. Next year, cutting-edge investors are going psychedelic.”  She notes that our perception of “psychedelics” will need to change.  The first movers in the psychedelic industry ”aren’t wearing tie dye and driving VW buses, but are at work in the lab and treatment room.”

“There’s a renewed wave of research and testing the use of hallucinogenic compounds, primarily psilocybin, the active ingredient in ‘magic mushrooms,’ to alleviate treatment-resistant depression, post-traumatic stress disorder, addiction and other conditions.”

Virtually all available evidence indicates that psilocybin and other psychedelics have tremendous potential for treating some of the world’s most costly health problems.  The scientific community and mainstream media appear united in the reasons supporting increased access to psychedelic treatments. See, e.g., “Johns Hopkins Scientists Recommend Rescheduling Psilocybin“.  While some have highlighted the astronomical costs of mental health problems that could be mitigated by psilocybin treatments, the potential economic opportunities remain poorly defined.

With near universal agreement in the benefits of psychedelics, many savvy investors are beginning to ask “How do I invest in psychedelics like psilocybin?”  Presently it appears extremely hard to invest capital in this industry, leaving the question open.

Investment Opportunities in the “Magic Mushroom” or Psilocybin Industry – Intellectual Property?

The psychedelic industry is just emerging.  Although scientists all agree that molecules found in “magic mushrooms” hold tremendous potential, the future of the psychedelic industry is still unclear.

Only one company (Compass Pathways) appears to be conducting clinical trials for a “magic mushroom” product.  Compass Pathways is developing a product with pure psilocybin as the only active ingredient.  That product fails to account for the importance of the multiple active ingredients in magic mushrooms. Accordingly, although Compass Pathways is at the forefront of developing psilocybin pharmaceuticals, they may be wedded to yesterday’s technology.

Compass’s approach is reminiscent of early work in the cannabis industry, i.e., focussing only on THC. Over the past several years, the cannabis industry has learned that pure THC is not the only important molecule in the cannabis plant.  To the contrary, that industry has recognized that (a) formulations of multiple active ingredients are better than (b) one single isolated ingredient.  See Entourage Effect.

By analogy, very few coffee or tea drinkers consider switching over to pure caffeine.  Beer and wine drinkers seldom switch over to grain alcohol.  What will happen when Compass Pathways faces competition from companies offering products that retain the advantages of naturally occurring magic mushrooms?  Compass has a clear advantage as the first mover.  But others seeking to enter the space with a pure psilocybin product may find it hard to compete with entities offering products formulated with synergistic combinations.

Investing in R&D and intellectual property could provide an alternative to investing in early stage psychedelic businesses.  Arguably, entrepreneurs looking to invest in psychedelics could generate the greatest returns by investing in research and development relevant to the future of the psychedelic industry.  Instead of “touching the mushrooms,” entrepreneurs could develop technology that will become valuable when mushrooms are eventually decriminalized and/or legalized.  Those entrepreneurs could pursue patent protection for that technology and then leverage that advantage when the legal barriers change.  Following this logic, several entities, including Compass Pathways, Paul Stamets, and CaaMTech have invested in intellectual property related to psychedelics.

The launch of the Imperial Center for Psychedelic Research follows a trend in renewed interest in psychedelics’ potential to treat some of the most intractable medical problems confronting society today. (For example, depression, anxiety, PTSD, compulsion, and other conditions “characterized by a kind of rigidity,” leaving the subject stuck in an unproductive pattern of thinking).  In addition to Tim Ferriss, the center’s other funders include Sanjay Singhal, Shamil Chandaria, Anton Bilton, and Bohdana Tamas. While these investors are clearly committed to furthering psychedelic research, it is presently unclear whether the Imperial Center for Psychedelic Research plans to capture the intellectual property generated through their efforts.

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