Why all the fuss about psychedelics?
Psychedelics are a controversial topic. Or at least, they were.
The word “Psychedelics” conjures up images of hippies in Ibiza’s heyday, John Lennon and those glasses, Burning Man, ayahuasca retreats in Costa Rica, perhaps even Austin Powers and his gorgeous velvet suits! But there is so much more to this space than outdated cliches about mind-expanding experiences and the quest for spiritual enlightenment. Psychedelics are serious business.
We’ve been fascinated by psychedelics for some time now and we’re buzzing with excitement at the possibilities. Of course, we don’t know how the industry will develop and who the winners and losers will be in the race to commercialise. But we firmly believe that we are early on the curve, and that the psychedelic ecosystem deserves serious attention from investors in public and private markets. We’re talking about a burgeoning investment category – one that’s still in its infancy.
Enter the rabbit hole.
A vibrant ecosystem is forming around psychedelics, with producers, distributors, thought leaders (and critics) creating a perpetual motion machine that signals exponential growth in the years ahead. But until recently, this field felt esoteric and impenetrable – the preserve of biochemists and pharmaceutical R&D departments, with a little bit of Sam Harris and Tim Ferris thrown in. It was hard to get a practical handle on real life use cases for psychedelics.
That was until we read a book which literally expanded our minds and led us down the rabbit hole. That book was Michael Pollan’s How To Change Your Mind: The New Science of Psychedelics, and it has helped to take psychedelics mainstream (or at least, onto the bookshelves of your local Waterstones, if it is still open).
Pollan reveals how psychedelics are improving the lives of not only the mentally ill, but also healthy people who are grappling with the challenges of everyday life. What’s really cool about this book is that the author doesn’t pontificate from the sidelines – given what he discovered while researching his book, Pollan chose to dive in and explore the landscape of the mind in the first person as well as the third. The result is something truly wonderful.
The premise (and promise) is simple – psychedelics help people to manage psychological illness and obtain a higher quality of life. When we talk about psychedelics, we’re really talking about Psilocybin, a hard-to-pronounce but nonetheless naturally occurring psychedelic prodrug compound produced by more than 200 species of mushrooms. Psilocybin is quickly converted by the body to psilocin, which has mind-altering effects similar, in some aspects, to those of LSD. Those effects are pretty groovy – they include euphoria, visual and mental hallucinations, changes in perception, a distorted sense of time, and spiritual experiences – but they can also include possible adverse reactions such as nausea and panic attacks.
An industry is born.
Human use of psychedelics is as old as the hills. Imagery found on prehistoric murals and rock paintings in Spain and Algeria suggests that usage of psilocybin mushrooms predates recorded history. In Mesoamerica, mushrooms were consumed in spiritual ceremonies before Spanish chroniclers first documented their use in the 16th century.
The industry took a step forward in 1959, when Swiss chemist Albert Hofmann isolated psilocybin and his employer Sandoz marketed pure psilocybin to physicians and clinicians worldwide for use in psychedelic psychotherapy (Rolling Stone reports that Homann “created LSD in 1936 – but it wasn’t until 1943 that he first dosed himself and went on a magical bicycle ride”). There was then a retrenchment in the late 1960s, with increasingly restrictive drug laws curbing scientific research into the effects of psilocybin and other hallucinogens.
In recent years, the sector has been gaining regulatory momentum, leading to mind-blowing possibilities for medical applications in the treatment of depression, anxiety and addiction. The research is fascinating and has been given a massive boost by the opening of the world’s first formal centre for psychedelic research at London’s Imperial College.
A fly in the ointment.
Whilst the empirical results from the various studies that have been conducted are staggering (in a positive way), there’s an epistemological disconnect.
Researchers (and by extension, regulators) are struggling to understand the biochemical process by which psychedelics alleviate mental illnesses. In other words, they know that psychedelics are a game-changer, but they can’t pinpoint how they work and why they’re so effective. This is a key barrier between clinical trials and widespread commercialisation and adoption.
The other option, of course, is decriminalization, which means that natural psychedelics (e.g. mushrooms) become a realistic choice for patients and consumers. Whilst this is another route to market – one that will create opportunities for public and private companies throughout the supply chain – we don’t believe that it will lead to the kind of mass adoption that could come through regulatory approval and pharmaceutical grade drugs delivered via traditional distribution channels.
Ready and waiting.
We’ve said it before, but we’re optimists. We believe in science, and we believe in people. This problem will be solved, and when it is, the psychedelics industry will explode into a new phase of exponential growth.
In fact, the Multidisciplinary Association for Psychedelic Studies (MAPS) is currently in the latter stages of the FDA approval process with a large scale study into the use of MDMA for the treatment of post-traumatic stress disorder (PTSD). Other nonprofits and companies are hot on their heels, and we’re close followers of the innovative work that Compass Pathways is doing here.
Things are also happening out in the big wide world. Zach Haigney has pointed out that Oregon will later this year vote on the Psilocybin Services Initiative – medical infrastructure and regulation around the manufacture and sale of psilocybin via a clinical setting. This parallels early days of medical marijuana in California and points to a positive trajectory for the adoption of psychedelics at the state level.
Private market participants are already getting in the action, embracing great risks for potentially great rewards. Twitter commentator Shroom Street said it all when they recently tweeted:
“I feel like there's a lot of people blindly entering the psychedelic space with no idea what they are getting themselves into.”
We prefer to wait and watch – it’s still early days, and there is plenty of time to play this theme. But rest assured, we are ready to capitalise. It’s simply a question of targeting and timing.
The bigger picture.
What’s really exciting about psychedelics as an investment category is the sheer size of the market. It’s no exaggeration to say that every single human being on our planet might be able to benefit from these treatments at some point in the future.
And those focused on therapeutic applications are missing the bigger picture. Psychedelics exist at the intersection of neuroscience, spirituality, healthcare and investing and a bunch of other fields. It’s fair to say that psychedelics lead us to question the very nature of consciousness. Digging deeper into that rabbit hole might lead us to weird and wonderful new ideas about how we might live, work and relate to each other – ideas with consequences for investors.
It’s too early in the journey to characterise this in detail, and too early on a Saturday morning to speculate as to where human beings might be headed over the next few decades. But is it really that far fetched to postulate that psychedelics might have a role to play in expanding and enriching the experience of being human?
John Lennon said, “Surrealism to me is reality. Psychedelic vision is reality to me and always was.”
For everyone else, there’s coffee. Strong, black coffee. But for a small and growing number of researchers, investors and optimists, there’s the promise of something stronger and brighter. And maybe – just maybe – it’s closer than you think.