Can Psilocybin Mushrooms Repeat the Cannabis Stock Boom?

For eager investors, the psychedelic and psilocybin industry is ripe with investment opportunities.

The cannabis stock boom — which has seen several peaks since 2016 — has driven many investors to begin researching different pharmaceutical, healthcare, and biotech companies that are researching and developing psychedelic-based therapies.

As more U.S. states begin to consider how to update regulations surrounding psychedelics, investors are keeping a close eye on psychedelic and psilocybin stocks. Though there are hefty risks associated with these stocks, there is also the potential for massive payoffs for patient investors.

As we dive into this topic, please keep in mind that this is not professional investment advice but rather an overview and analysis of the psychedelic industry, legalization progress, and potential investment opportunities that may arise in the near future.

Always do your own due diligence independently or with the assistance of a professional investment advisor before making any major investments into psychedelic stocks.

Without further ado, let’s jump into the world of psychedelics and psilocybin stocks.

What are Psychedelic & Psilocybin Stocks?

Psychedelics are a category of psychoactive substances that can change a person’s mood, cognitive function, and perception while using the substance.

These substances are widely known for causing visual and sometimes aural hallucinations that can often be spiritual in nature. Psilocybin is a specific type of psychedelic hallucinogenic found in mushrooms (commonly called “magic mushrooms”). Advocates for psychedelics often focus on magic mushrooms when pushing for the decriminalization of these substances.

Psychedelic and psilocybin stocks are securities that represent a fraction of ownership in companies that deal with psychedelic products. This can include research, clinical trials, and even the production of recreational products offered in states and regions where the substances are legalized.

Psychedelic companies in the U.S. are often pharmaceutical organizations with a focus on psychedelic and psilocybin research. The reason for this is that psychedelics and psilocybin are still illegal for recreational use and ownership in most of the U.S. and other parts of the world.

However, times are changing, and as regulators begin to explore the decriminalization of psychedelics and magic mushrooms, more business opportunities are arising for psychedelic-centric companies as well.

The U.S. in particular has begun to change its tune when it comes to the legality of psilocybin. Though federally the use of psychedelics and psilocybin is illegal, as of November 2022, the following U.S. states have passed legislation regarding psychedelics and psilocybin:

• Colorado: In November 2022, Colorado voters voted in favor of legalizing psilocybin and psilocin (the two compounds found in magic mushrooms). Under this new legislation,  psilocybin can be used at state-regulated centers, as well as for personal private use, growing, and sharing. Along with psilocybin and psilocin, this legislation also legalizes the use of the psychedelic compounds DMT, ibogaine, and mescaline. Retail sales and use in public remain prohibited.
• Oregon: Oregon was the first state to decriminalize psilocybin and legalize the substance for personal use in 2020. The decriminalization and legalization of psilocybin are not intended for recreational use — instead, Oregon regulators have allowed service centers with trained facilitators to offer psilocybin experiences to clients. These service centers are expected to become available starting in January 2023.
• Washington, D.C.: In 2020, Washington D.C. passed the Entheogenic Plant and Fungus Policy Act that decriminalized the possession and personal use of magic mushrooms, ayahuasca, and mescaline. Though these substances are not legalized in D.C., they have been moved to the lowest priority for D.C. law enforcement.

Other states are also working to change their laws surrounding psilocybin and other psychedelic substances. According to a 2022 report from CNN, Texas, Maryland, Hawaii, Connecticut, and Utah have established working groups to study the potential medical applications of psychedelic drugs.

Additionally, states that introduced psychedelic legislation in 2021 and 2022 include California, Oklahoma, Kansas, Florida, Georgia, Missouri, Iowa, Michigan, Virginia, West Virginia, Pennsylvania, New York, Vermont, Massachusetts, Rhode Island, and Maine.

Around the globe, several other nations have decriminalized magic mushrooms as well, including Austria, Brazil, Croatia, the Czech Republic, Italy, Jamaica, Portugal, Spain, and Switzerland. In the Netherlands, most psychedelics are decriminalized. Here, you can recreationally purchase magic truffles, which are derived from the sclerotia of psilocybin mushrooms.

The Rise of Cannabis Stocks

Though the U.S. is still a ways away from the widespread legalization of psilocybin and other psychedelics, it is much further along when it comes to cannabis.

Cannabis is the plant from which marijuana is derived and contains the psychoactive compound THC.

Colorado was the first state to legalize cannabis for medical use in 1996, as well as the first state alongside Washington to legalize the substance for recreational use in 2012. As of 2022, the following states have passed legislation regarding cannabis:

• Recreationally Legalized (Full Legalization): Washington, Oregon, California, Alaska, Nevada, Arizona, New Mexico, Colorado, Alaska, Michigan, Illinois, Virginia, New Jersey, New York, Connecticut, Massachusetts, Rhode Island, Vermont, and Maine
• Medically Legalized & Decriminalized: North Dakota, Minnesota, Missouri, Ohio, New Hampshire, Delaware, Maryland, Mississippi, and Hawaii
• Only Medically Legalized: Utah, South Dakota, Oklahoma, Arkansas, Louisiana, Alabama, Florida, West Virginia, and Pennsylvania
• Only Decriminalized: Nebraska and North Carolina
• Legalization of CBD with THC: Texas, Georgia, Tennessee, Kentucky, Indiana, Iowa, and Wisconsin
• Fully Illegal: Idaho, Wyoming, Kansas, and South Carolina

Much of this legislation has occurred in more recent years, with 2016, 2020, and 2021 being the biggest years for the legalization of the substance in the U.S.

Unsurprisingly, these years also saw a significant increase in cannabis investments, with many cannabis companies experiencing major increases in their stock value. Some of the top companies that gained attention from investors in these timeframes included Aurora Cannabis ($ACB), Canopy Growth ($CGC), and Cronos Group ($CRON).

These companies and many more saw a major surge in value in 2018 after the nationwide legalization of cannabis in Canada, according to Reuters. However, the cannabis industry did not expand as rapidly as investors expected it to, leading to a fairly drastic drop in overall value.

Cannabis stocks would experience another boom in 2020 amid the Covid-19 stock market crash, as drastically decreased stock prices and more accessible investment platforms encouraged more investors than ever to try their hand at the stock market.

As of November 2022, many of the top cannabis stocks have dropped in value, as the stock market as a whole faces challenges brought on by inflation, socio-political conflicts, and ongoing health crises.

Though some investors have considered this drop in value a “burst of the cannabis bubble,” many others continue to find opportunity in lower stock prices.

This bull-ish attitude from cannabis investors was only strengthened by the recent cannabis policy overhaul by U.S. President Joe Biden which, among other things, strives to pardon people in prison for simple marijuana possession and asks regulators to reconsider how cannabis is legally classified.

Could Psychedelic Stocks Repeat the Cannabis Stock Boom?

The widespread legalization of cannabis has proven that legalization can often lead to a rise in investments — ultimately resulting in major gains for those who choose to invest either long-term or short-term in cannabis stocks.

As psychedelics and psilocybin begin to take the main stage in the legalization conversation, many investors are beginning to wonder if psychedelic companies are the next big investment.

From a short-term perspective, widened legalization of psychedelic products has the potential to result in similar increases in value that cannabis stocks have enjoyed in recent years. However, like with cannabis stocks, the longevity of these investments depends on the long-term performance of the industry and the amount of revenue psychedelic companies are able to generate annually.

According to The Motley Fool — a private financial and investment advisory company — investing in psychedelic stocks in 2022 is highly risky but has the potential for a massive payoff for investors who hold onto their psychedelic stock investments long-term.

On the topic of potential investment risks associated with psychedelic stocks, The Motley Fool outlines three major risks to be aware of:

1. Therapy Failure: In states and regions that have legalized medical uses of psychedelics and psilocybin, one of the main intended uses is to provide therapeutic treatment for mental illnesses in clinical trials. If these therapies prove to be ineffective — or even dangerous — this could result in a massive drop in stock value. Since many of these clinical trials are still in the very early stages, it is hard to currently predict the outcomes.
2. Lack of Commercial Availability: Even in the event that the clinical trials go well and prove to be effective at treating mental illnesses, there is still the challenge of making such treatments commercially available. Not only would commercial availability require additional regulation to be passed but it would also need to be affordable for the general public to be truly successful. Currently, it is unclear how much such treatments would cost and whether or not health insurance providers would agree to cover these costs.   
3. Lack of Medical Legalization: Finally, the biggest risk associated with investing in psychedelic stocks right now is simply the lack of widespread medical legalization. Without widespread legalization, commercial use of psychedelics would be incredibly limited and only available within a few specific states. Additionally, such therapies would be unlikely to be made available to people who are not residents of the state where the therapy is offered.

These risks are certainly nothing to scoff at and must be considered by anyone considering investing in psychedelic and psilocybin companies.

However, as The Motley Fools points out, long-term holdings of psychedelic stocks could be quite profitable for patient investors with a tolerance for high risk levels.

Psychedelic Stocks to Watch in 2022 & Beyond

For investors who are interested in expanding their portfolios to include psychedelic and psilocybin stocks, it is crucial to know which companies to keep an eye on.

Here are six companies highlighted by The Motley Fool that show potential based on their current growth and overall performance in the stock market:

• ATAI Life Sciences ($ATAI): ATAI Life Sciences is a biopharmaceutical company focused on clinical-stage research, with a focus on the treatment of mental health disorders. The company is headquartered in Germany and has offices in New York, London, and Berlin. With a 2022 market cap of $860 million, ATAI Life Sciences is working on the development of multiple psychedelic-based drugs, including ibogaine and ketamine.
• Compass Pathways ($CMPS): Compass Pathways is a pharmaceutical company based in the United Kingdom with a 2022 market cap of $553 million. This company is specialized in researching new approaches for treating mental health conditions, with an emphasis on psilocybin therapy research. The company has developed a synthesized formulation of psilocybin called COMP360 and is researching how COMP360 can improve treatment-resistant depression.
• Mind Medicine ($MNMD): With a 2022 market cap of $454 million, Mind Medicine is a biotech company that is another of the bigger players in the psychedelic space. The company is currently developing three clinical-stage programs, with two focused on LSD and one focused on ibogaine. Mind Medicine studies classic psychedelics as well as second and third-generation psychedelics, including potentially non-hallucinogenic characteristics.
• Cybin ($CYBN): Cybin is a pharmaceutical company that specializes in engineering psychedelic molecules. The company has a 2022 market cap of $148 million and is currently developing a clinical-stage psilocybin therapy called CYB001. Along with developing a psilocybin therapy, Cybin also works to engineer proprietary drug discovery platforms, drug delivery systems, novel formulation approaches, and treatment regimens for mental health disorders.
• Seelos Therapeutics ($SEEL): Seelos Therapeutics is a pharmaceutical company with a 2022 market cap of $107 million. This company is researching the use of psychedelics to help treat conditions such as acute suicidal ideation and major depressive disorder. Seelos is currently developing four clinical-stage programs that include intranasal ketamine use.
• Numinus Wellness ($NUMI.F): Numinus Wellness has a 2022 market cap of $84 million and is a wellness company with a focus on psychotherapy. This company provides psychotherapy and develops psychedelic-assisted treatments that include drugs such as ketamine, MDMA, and psilocybin. This company performs clinical trials for both MDMA and psilocybin.

Final Thoughts: Should You Invest in Psychedelic Stocks?

If you are considering investing in psychedelic stocks, you have a lot to consider.

There is no denying the risks associated with companies who are researching and developing psychedelic treatments and products. Psilocybin research and products currently show the most promise, with much of the recent legislation surrounding psychedelics maintaining a clear focus on magic mushrooms.

As for whether or not now is the time to invest, it ultimately comes down to your personal risk tolerance. Psychedelic and psilocybin stocks are headed for turbulent waters, where we will likely see high highs and low lows in the coming years. Yet, if widespread legalization occurs, those who invested early will likely experience massive gains as companies work to expand their presence in the industry.

No matter what you decide to invest in, remember to always do your due diligence and work with a professional investment advisor whenever possible.

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