Is the Potential of Psychedelic Stocks an Illusion?

Someone should do a study that explores how many cannabis investors smoke cannabis. To truly appreciate the potential, you probably need to understand the product. Similarly, one wonders how many investors in psychedelic stocks understand the potential because they’ve experienced just how profoundly moving an acid trip is, or how much darn fun mushrooms can be, or how surreal it is to explore a k-hole and battle demons. Only if you’ve dabbled in psychedelics can you truly appreciate their potential in therapeutics.

Some investors like “Shark Tank” judge Kevin O’Leary believe the potential for psychedelic therapeutics is a once-in-a-lifetime opportunity worth “hundreds of billions of dollars,” a total addressable market (TAM) that far exceeds the cannabis opportunity. It’s bold claims like this that led us to investigate 7 Psychedelic Therapy Companies Addressing Mental Health several years ago, some of which are now public. In fact, enough public companies dabble in psychedelic therapeutics that four ETF providers have now launched thematic ETFs, none of which have attracted meaningful assets under management (AUM). The largest of these by AUM – the Horizons Psychedelic Stock Index ETF (PSYK.NE) – has only managed to attract about $18 million USD. Below you can see the 10 stocks in the ETF ranked by market cap (excluding JNJ and AbbVie).

Bar graph showing market cap of 10 Psychedelic Stocks
Credit: Nanalyze

Of the stocks listed above, we’ve taken a closer look at three of the four biggest firms – MindMed (MNMD), atai Life Sciences (ATAI), and Compass Pathways (CMPS) – all of which Mr. O’Leary has invested in. Today, we want to have a conversation around the potential for psychedelic therapeutics in a popular therapy target – treatment resistant depression (TRD).

Treating Depression

Spend time in some of the world’s poorest countries and you’ll be pleasantly surprised at how happy people seem given their circumstances. There’s some element of “ignorance is bliss” taking place where people who don’t have many possessions learn to enjoy life’s simple pleasures. Research shows that people in high-income countries are 2-4 times more likely to take antidepressants, but one might argue that’s because they have the financial means to do so. But riddle me this Batman. Why is it that of the 20 happiest countries in the world, nearly half consume more antidepressants than other countries on this planet?

Bar graph showing the number of people per 1,000 who take antidepressants in 20 of the happiest countries in the world
Credit: Business Insider

People in these countries are all so happy because their antidepressants are working, of course. Or is that depression is a first-world problem created by pharmaceutical companies to cash in on people who find the rat race of consumerism isn’t as fulfilling as the commercials imply?

The answer is probably somewhere in between. Scientific American published a paper showing that many antidepressant studies were tainted by pharmaceutical company influence bias – like industry employees being 22 times less likely to have negative statements about a drug than those run by unaffiliated researchers. 

Screenshot of Scientific American article "Many Antidepressant Studies Found Tainted by Pharma Company Influence
Credit: Scientific American

Mental health issues are very real for those who they afflict, we’re just not convinced that throwing prescription drugs at the problem is the way forward. That’s why psychedelic therapeutics are compelling beyond just the financial rewards that may exist at the end of the rainbow. Just consider that the same pharmaceutical companies that appear to have influenced studies may not be so keen on alternative methods of therapy cannibalizing their offerings unless the same – or ideally more – revenues can be realized.

Somewhere around 30% of people with depression can’t find a way to treat it. Treatment resistant depression (TRD) is defined as patients who have tried at least two prescription drugs that had no effect on their symptoms. Given the prevalence of the problem, it’s no surprise that two of the three psychedelic therapy companies we follow target TRD with their lead candidates – Compass (psilocybin) and atai (ketamine). What investors in both these companies should be aware of is the progress being made by the only legal psychedelic drug available – SPRAVATO by Johnson & Johnson’s Janssen which treats TRD using ketamine.

Ketamine, sometimes known as the party drug Special K, is a compound made of two mirror-image molecules. It has long been approved as an anesthetic, isn’t covered by a patent, and is widely used — meaning it’s not going to make much money for a pharmaceutical company. So, Janssen patented the left part of the molecule, esketamine, and sent it through the FDA approval system as a potential cash cow called SPRAVATO, legitimizing the use of ketamine for depression in the process.

Credit: The Verge

The Questionable Success of SPRAVATO

The above paragraph from The Verge talks about how JNJ managed to “legitimize” ketamine for depression which implies first use. That’s not the case, as ketamine clinics across the United States have been offering ketamine shots to TRD patients for a while now. It’s entirely legal since ketamine is an FDA-approved anesthetic, it’s just not reimbursed by insurance because it’s not approved by the FDA for treating TRD. Enter SPRAVATO, a drug that’s FDA approved for treatment of TRD, but that is meant to be taken alongside an antidepressant which seems to defeat the purpose.

Infographic about SPRAVATO
Credit: Janssen

The patient can self-administer the nasal spray, but then needs to hang around the therapist’s office for several hours so they can be monitored. The outcome hardly seems magical, at least according to the above description. After 16 weeks, patients who continued using the treatment were “less likely to experience a return of depressive symptoms.” When initially released, the treatment was said to be overpriced – more than $4,700 for the first month of treatment – for something with questionable efficacy. A recent article by Pharmaceutical Technology talks about how SPRAVATO has “struggled to gain market traction” because of the high price tag, abuse potential, scarcity of providers, and difficulty in getting insurance companies to reimburse. With JNJ not disclosing how much money they’re raking in from a therapy that’s been available for several years now, it’s anybody’s guess as to whether the first psychedelic drug to receive FDA approval will be a success story.

You can be sure that big pharma is watching the success of SPRAVATO closely when considering the potential of other psychedelic-inspired therapeutics. So far, things aren’t looking overly promising, though the ultimate indicator will be how the drug impacts JNJ’s wallet which remains to be seen. In the meantime, society seems to be increasingly accepting of psychedelics to treat the malady du jour.

The Growing Popularity of Microdosing

It’s not tough to find psychedelics if you know where to look. There’s much less of a stigma surrounding them these days, and the police have better things to do than search out people who dabble in this stuff. The active compounds are available to those who want to try them at a nominal price. For thousands of dollars a month, these compounds can be taken in a psychiatrist’s office to make sure you’re doing it safely and properly. Or you can join the popular trend of “microdosing” and just do it yourself.

Article headline regarding Microdosing with Psychedelics

Some of Netflix’s most popular documentaries right now are Fantastic Fungi and How to Change Your Mind, a docuseries exploring the history and uses of psychedelics. As a result, Google searches for “microdosing” have absolutely soared, and Oregon is now the first state to decriminalize psilocybin mushrooms and legalize them for therapeutic use. Though they remain illegal in other states, they’re prevalent on the black market and cost about $100 an ounce. Acid seems to be running about $5 a hit when purchased online from a reputable source. Maybe the first week of treatment doesn’t need to cost $4,000 after all.

While the pharmaceutical industry approaches the topic with kid gloves, society is moving forward and experimenting with psychedelics in small amounts for reasons ranging from increasing productivity to reducing anxiety. This helps remove the stigma associated with legalized psychedelic therapeutics, but the bigger problem might be acceptance from big pharma which will only happen for one reason – the almighty dollar.


Widespread adoption of psychedelic therapeutics can only happen if the industry chooses affordable price points and makes administration methods more convenient. Given society’s growing acceptance of psychedelics, there’s also the black market to contend with. If microdosing goes mainstream enough, there’s a certain percentage of the market that will be lost to that avenue. While there are numerous other indications that can be targeted by psychedelics, they’ll need the blessings of big pharma before realizing any success stories.

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2 thoughts on “Is the Potential of Psychedelic Stocks an Illusion?
  1. When talking about illusion: I am wondering about the phenomenon of Medjugorje: some people claim daily apparitions of the Madonna in Medjugorje happening for the last 40 years. As a result 50 million people made pilgrimage to Medjugorje in Bosnia.
    Is it some form of collective hallucination ? Human mind has many mysteries ..

    1. That is really interesting, thank you for raising (adds to bucket list). Something similar happened in the town of Fatima way back when. Great question, great comment about the human mind having many mysteries. The Mandela effect is said to be the result of a defect in the brain that we all collectively have where a large majority remember things differently. For centuries cultures have used hallucinogens for religious experiences so they’re definitely related.

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