about 3 years ago • 3 mins
For investors, cannabis is proving to be a gateway drug. Some “shroom stocks” – publicly listed firms working with psychedelic substances like psilocybin – have seen their share prices rise over 700% this year. And it’s not just magic mushrooms: companies are betting that the likes of LSD, MDMA, and ketamine all have a shot at disrupting the $70 billion mental healthcare market.
One of the main reasons investors are so excited about psychedelics stocks is the wide range of psychiatric disorders they could potentially help treat – including depression, anxiety, ADHD, and PTSD. And while medical cannabis treatments target the symptoms of such issues, research from institutions including Johns Hopkins University, Imperial College London, and King’s College London indicates that psychedelic substances could cure some of them altogether by rewiring the brain.
As well as having potential applications for dementia patients, psychedelics could also play a major role in treating opioid addiction – another major public health crisis, particularly in the US. MindMed, one of the largest psychedelic medicine specialists, is currently conducting related clinical trials with a non-hallucinogenic compound based on an African tree extract long used for ritual purposes.
Most psychedelics are, like weed, federally outlawed in the US and banned in many other countries around the world. But similar to weed’s path to the mainstream over the past decade, restrictions on psychedelics are gradually being lifted across limited parts of North America.
The cities of Denver and Oakland decriminalized psilocybin in 2019, while Washington DC followed suit last month with the addition of several other plant-based drugs. The state of Oregon, meanwhile, just became the first to legalize several psychedelics’ use in psychiatric treatment – and the Canadian government has also approved individual cases.
All this may help explain why a whole host of medical startups have sprung up developing psychedelics-based mental health treatments. Unlike with weed, there’s little push for recreational rule changes – so the sector’s focus is tighter and the overarching regulatory picture perhaps a little less fuzzy. For now, psychedelics stocks are thus more like biotech companies seeking approval for new medicines than weed brands looking to shift eye-catching products.
There is at least one way in which psychedelics resembles weed a few years back: dozens of companies have gone public recently via reverse takeovers. Canada is again leading the way, with around 25 psychedelics firms currently listed on the country’s stock exchange. That means you can now invest in this exciting new area of healthcare alongside big names such as early Facebook backer Peter Thiel and Shark Tank’s Kevin O’Leary. But before you do, I’ve got three important tips for you.
First, do your own in-depth research on any individual companies you’re interested in, drawing on some of the techniques outlined in our Packs. Second, remember that this is a fledgling industry dealing with substances that remain illegal in most countries. Any investments within the psychedelic space therefore come with a lot of risk – and you should only deploy a very small part of your total portfolio.
Third, because these companies are looking to secure regulatory approval for individual drugs, it’s particularly risky to put all your psychedelic investment into a single firm. A bad trip could be disastrous for that company’s share price – so it’s probably better to instead diversify across a basket of shroom stocks. Here’s a good list of publicly available psychedelics stocks to get you started. Now go experiment!
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.