The psychedelic drug industry is 'the new cannabis' for investors

The global coronavirus pandemic has created a huge spike in mental health conditions. This summer, the Centers for Disease Control reported 11% of American adults considered suicide, while a whopping 40% said they were struggling with mental health or substance abuse.

Companies like MindMed (MMEDF) are creating psychedelic drugs to help people battle these mental health issues. The New York-based biotech startup is conducting clinical trials of drugs including LSD and psilocybin, to treat anxiety, depression and opioid addiction.

“I think that psychedelic medicines offer a new paradigm in mental health,” MindMed’s co-founder and co-CEO JR Rahn told Yahoo Finance Live. “Traditional medicines that are treating things like depression, addiction, and anxiety really are seeking to numb and mask the issues that surround these illnesses. So, things like Xanax, while they might make you feel better, they can also be highly addictive and are not dealing with the underlying problem.”

Rahn said the stigma that has long plagued psychedelics is showing signs of fading as more people become educated about the issues. This year, Oregon became the first state to legalize psilocybin, an ingredient in hallucinogenic mushrooms, for mental-health treatment.

“We think this is really a voice and the will of the people that we need innovative solutions to mental health, but we believe, ultimately, these become mainstream medicines only with FDA approval,” he said.

Unlike the cannabis industry, Rahn said psychedelic biotech firms are not seeking state-by-state approvals for their pipeline of drugs. “Companies that are taking this biotech approach are really looking at proving out the safety and efficacy of these medicines at the FDA.”

MindMed recently announced a commitment to provide $5 million over five years for a psychedelic medicine research training program in collaboration with NYU Langone Health and NYU Grossman School of Medicine.

“What we're interested in with NYU is to start training the next generation of psychiatrists on how we can start implementing psychedelic medicines into practices across America in order to, eventually, scale these medicines,” Rahn said. “Once and if they are approved by the FDA, we're going to need a network of psychiatrists and therapists that are able to administer them to patients.”

The ‘new cannabis’

MindMed is among the first psychedelic drug companies to be listed on a public exchange. It currently trades on Canada NEO Exchange as well as the over-the-counter market in the U.S. and has applied for an uplisting on the Nasdaq.

Some analysts call the psychedelic drug industry “the new cannabis” opportunity for investors, and it’s attracting some high-profile money.

Dry psilocybin magic mushrooms and marijuana buds in plastic bags on brown table. Medical alternative remedy.
Dry psilocybin magic mushrooms and marijuana buds in plastic bags on brown table. Medical alternative remedy. Credit: Getty

Shark Tank investor Kevin O’Leary, who holds no cannabis stocks in his portfolio, decided to back MindMed, along with Blake Mycoskie, the founder of Toms Shoes.

“I was originally turned down by Mr. Wonderful [O’Leary] when I first pitched him on the idea of using psychedelics to treat mental health,” said Rahn, “but I think, when you look at the underlying problem, these are large societal issues. These are issues that are going to affect our country for many, many years in the future. And I think the biggest outcome and the biggest impact that COVID-19 is going to have on society is in mental health and addiction. So, to get people like Blake from Toms shoes and Kevin O'Leary on board, they're humans too, right? And I think everybody should want to find the solution to these problems that are plaguing society.”

MindMed lost $8.6 million in Q3, bringing its year-to-date loss to $21.4 million. Following a financing round in October, MindMed is sitting on $37.8 million in cash reserves, which Rahn said will allow the company to continue progress of its clinical trial pipeline of psychedelic medicines and experiential therapies.

In September, London-based Compass Pathways (CMPS) became the first psychedelic drug company to reach a billion dollar market cap when it went public on the Nasdaq. Its backers include billionaire investor and PayPal co-founder Peter Thiel and ex-hedge fund manager Michael Novogratz.

Compass has reported a net loss of $25 million over the first half of this year, with most of it related to testing and compliance. The company has warned of "significant losses" and said its therapy will require "substantial additional funding."

Rahn said Compass Pathways’ successful IPO is proof that psychedelic drug therapies can go mainstream. “It really demonstrates that Wall Street is looking at mental health and addiction, potentially, as America's next great growth story. That's sad, but I think it's true.”

Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.

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