Psychedelics and Cannabis: Part 2, Industry Overlap

As investors survey the publicly listed psychedelics companies, it may seem like most of these companies have past or current ties to the cannabis industry. That’s because they do.

Here it is important to note a distinction. Among public companies, the majority of companies with psychedelics-related operations are past/current cannabis companies.

Overall, most psychedelic drug companies have no cannabis-based operations. Put another way, almost all private psychedelics companies have no cannabis operations.

This distinction is no accident. It reflects basic realities in both the psychedelics and cannabis industry.

Cannabis legalization

Part 1 of this series covered the regulatory parallels (and differences) between psychedelic drugs and cannabis. As that article noted, cannabis legalization has essentially been forced upon the U.S. and Canadian governments.
 
Via voter referendums (in the U.S.) and successful court challenges (Canada), governments have grudgingly released cannabis from the tentacles of War on Drugs prohibition.

Yes, Canada legalized cannabis for recreational use at the national level. But its tight restrictions on cannabis have hamstrung the legal industry, allowing the cannabis black market to remain dominant.

Provincial governments have exacerbated this problem in key Canadian markets through reluctance (and sheer incompetence) in opening up retail cannabis stores.

In the United States, most states that have legalized cannabis have been just as reluctant – and just as incompetent – in transitioning to a legal industry.

Federally, the U.S. government remains largely in its War on Drugs fantasy world, with the leadership of both parties paying little more than lip service to cannabis reform.

The Trump administration legalized hemp. Then it gave U.S. hemp farmers few places they could actually sell their crops.

The overall result is that the large-and-growing cannabis industry continues to be dominated by black market operators – in almost every state and provincial jurisdiction.

Legal, tax-paying cannabis companies been stymied at every turn in commercializing their products and phasing-out the cannabis black market.

Consequently, there has been both a consolidation and an exodus within the cannabis industry. Smaller companies that weren’t absorbed by larger players began looking for additional opportunities.

Enter psychedelic drugs.

The Cannabis School of Hard Knocks

The psychedelics industry is just beginning the long road to decriminalization and (eventual) legalization of these substances – for medicinal use.

The cannabis industry has already been there and done that.

Cannabis companies have worked with regulators and politicians on both sides of the border, and they have the scars (on their backs) to prove it.

The management teams of several of these smaller companies are now gravitating toward the psychedelic drug industry. But these companies are not so much running away from cannabis as they are running toward psychedelics.

As a medicinal substance, cannabis has a plethora of uses. It is a relatively benign recreational drug. Ironically, these qualities have earned cannabis some implacable enemies.

Cannabis can make people generally healthier, in a number of ways. It’s also safe. But it’s very difficult to patent cannabis-based therapies.

This means multinational drug companies can’t profit from cannabis. Rather, it is a threat to their $1 trillion per year revenue pie. For this reason, Big Pharma has aggressively supported anti-cannabis lobbying. And the pharmaceutical industry has “friends in high places” on both sides of the Border.

Recreational cannabis has only been a boon for those jurisdictions that have legalized it. A new stream of tax revenues for governments. A new stream of jobs for the people.

Cannabis use by minors has actually decreased, as legal operations phase out the black market. The black market is where teens buy their cannabis.

However, anti-cannabis zealots won’t allow little things like “facts” or “science” to sway them from their quest to keep ‘marijuana’ illegal.

Cannabis companies have been swimming against the tide in the U.S. and Canada. But management teams that have already been through the Cannabis School of Hard Knocks see better prospects with psychedelics.

Why?

Psychedelic drugs: enormous needs, large markets

Psychedelic drugs are unlikely to ever be legalized for recreational use for North American populations. Their psychoactive (and often hallucinogenic) properties are simply too potent.

Medicinally, however, a research Renaissance is taking place with these substances. Mainstream medicine is rediscovering the potential of these drugs as treatments for health disorders, in particular: depression, addiction, anxiety and PTSD.

Scientists looking at the medicinal potential of psychedelics and corporate executives looking at the commercial potential of psychedelics are both strongly encouraged by two factors.
 

1. Early clinical results are showing exciting success rates for a number of psychedelics-based therapies.
2. The existing standard of care for these conditions is so appalling that better treatment options are desperately needed.

Psychedelic Stock Watch has previously covered clinical studies and trials with psychedelic drugs. And we have reviewed some of the amazing findings to emerge from those studies.
 
Near-immediate results. High success rates. In several contexts, researchers have described what are essentially cures.

In contrast, mainstream medicine (and the pharmaceutical industry) have failed despicably in providing adequate treatment for depression, addiction, anxiety and PTSD.

Failure rates for the current standard of care in these areas generally start at 50% and range higher.

There is a large, imperative need for better treatment options. Psychedelic drugs show great promise in providing the new standard of care for these conditions. And these are all multi-billion dollar treatment markets.

For the battle-scarred veterans of the cannabis industry, there is an additional bonus. Psychedelic drugs are amenable to our drug patent and licensing system.

Rather than being a threat to Big Pharma’s revenues, psychedelics represent extremely promising candidates to help multinational drug companies replenish their badly-depleted pipelines for new, licensed drugs.

An opportunity to swim with the tide rather than against it.

Psychedelics-cannabis hybrids

The trend for public cannabis companies to team-up with private psychedelics start-ups can be largely seen as a win/win proposition.
As noted, cannabis companies have new markets – and a new industry – to help pioneer.

What’s in it for psychedelic drug start-ups?
 

• A public listing
• Management with experience in navigating the (capricious) political and regulatory waters in the United States and Canada

For these psychedelics-cannabis hybrids, some are transitioning almost entirely away from cannabis operations. Others have viable core businesses that can provide either revenue streams or simply some ‘critical mass’ to operations.

A few examples of such hybrids are:
 
Some publicly listed psychedelics companies have chosen to pursue their RTO/IPO independently from the cannabis industry. Several of the companies that are still private (especially some of the larger players) are also expected to go this route.

However, the high degree of industry overlap with psychedelics and cannabis is likely here to stay. It’s not a surprise, nor should it be a worry to investors entering the psychedelics space.

There are many reasons for corporations and investors to be attracted to the psychedelic drug industry. If some cannabis companies see “greener pastures” here as well, who can blame them?