How to Invest in Psychedelic Companies
How to Invest in Psychedelic Companies — As psychedelic legislation continues to expand, many investors have taken note of the vast profit potential within the psychedelic drug industry. Notably, experts project psychedelic sales to grow by about 16.3 percent a year to reach $6.85 billion by 2027. Potential therapeutic benefits plus a market eager to purchase psychedelic-related products make the industry ripe for continued growth in the future.
While federally illegal, one state (Oregon) and a handful of municipalities have recently legalized psilocybin. Specifically, Oregon legalized psilocybin for therapeutic use along with places like Denver, Colorado, Washington D.C., and Somerville, Northampton, and Cambridge, Massachusetts.
Investors are particularly optimistic about the psychedelic industry’s growth potential thanks to a wealth of psychedelic research and development that is currently taking place across the globe. Of course, as with any strictly regulated substance, there are risks. Here are some key points to remember when learning how to invest in psychedelic companies.
Why Invest in Psychedelics
An investment in a company or industry ultimately depends on the profits or future projections those companies can deliver to shareholders. The psychedelic industry is no different. There are some reasons to be excited if you’re a potential investor.
- Growth potential: The psychedelic industry is young. Many areas just recently legalized or descheduled the substance. As such, there is still plenty of room for psychedelic industry growth should more progressive legislation continue. For example, the FDA recently granted Breakthrough Therapy designation to Fortune 100 companies like Johnson and Johnson, thus allowing them to study psychedelic nasal treatment for depression.
- New products and uses: Unfortunately, many people have an outdated perception of psilocybin and other psychedelics. Fortunately, further studies, educational tools, new products are coming to fruition. Notably, most psychedelic research currently focuses on its effectiveness in treating conditions like PTSD, depression, anxiety, and ADHD. This is especially crucial following COVID, which largely intensified our global mental health epidemic. With mental health a growing priority for leaders, businesses, and communities, alike, it’s easy to see how to invest in psychedelic companies for the greater good of everyone.
- Emerging Growth: Many well-established companies are entering the psychedelic space, thus creating exciting investment opportunities for those who play their cards right. However, those who really want to know how to invest in psychedelic companies do some research and be bold with their investments in this exciting new sector.
How to Invest in the Psychedelic Industry
Notably, there are a few different ways to invest in psychedelic companies, many of which are accessible through online brokers and investment apps. Here are the easiest ways to invest in psychedelic companies right now.
Stocks available to retail investors are generally the least expensive way to invest. Moreover, they also offer the highest risk versus reward potential. Picking the best psychedelic stocks will require substantial research, but don’t worry! When it comes to how to invest in psychedelic companies, we’ve got you covered. Importantly, we strive to be your go-to source of psychedelic information and hidden stock gems.
Regarding how to invest in psychedelic companies, ETFs are a lower-risk investment because investors don’t need to pick individual companies – the ETF (Exchange-Traded Funds) does that for them. However, one must be aware of the potentially hefty fees associated with ETFs.
Notably, one of the most popular psychedelic ETFs is the Horizons Psychedelic Index ETF (PSYK). Importantly, this EFT tracks the performance of companies within the psychedelic ecosystem. As of September 2021, the fund’s most prominent positions were in COMPASS Pathways Plc – American (CMPS) and Cybin Inc. (CYBN), with those two holdings making up about 22 percent of the fund’s assets.
This ETF holds shares in U.S. and Canadian companies and comes with a hefty expense ratio of 11 percent, which is significantly higher than what a typical stock index fund would charge.
Most banks are still unable (or unwilling) to provide financing to both cannabis and psychedelic companies because they remain federally illegal. As such, developing psychedelic companies looking to raise funds may turn to non-traditional sources like Real Estate Investment Trusts, or REITs. Notably, companies can engage in various deal structures, such as a sale-leaseback transaction. Essentially, they sell their real estate to a REIT and immediately lease it back on pre-established terms. This is a creative way for companies to get capital outside traditional banking.
For example, one of the best-known cannabis REITs, which focuses exclusively on medical uses of marijuana, is Innovative Industrial Properties (IIPR). The company holds a portfolio of greenhouse buildings that are leased to medical-use growers across major U.S. markets and offers investors a yield above two percent as of September 2021.
Risks of Investing in Psychedelics
While the future potential of the psychedelic industry may sound exciting, there are some key risks to keep in mind.
- Regulations: While the trend in other countries has been toward more legalization, one must remember that psychedelic drugs are still federally illegal. This, of course, makes it difficult for companies in the industry to raise capital through traditional, federally regulated banks. Moreover, laws vary between jurisdictions and often swing based on which political party is in power. As we’ve seen in cannabis-friendly states, high tax rates can make profitability difficult for companies.
- Competition: Booming industries attract a lot of companies and entrepreneurs looking to capitalize on the growth potential. As such, the psychedelic industry will be very competitive. Notably, this competition could impact the return on investment earned by shareholders either positively or negatively. Either way, the search for the best psychedelic companies to invest in will surely welcome exciting innovations.
- Early days: The psychedelic industry is just barely emerging and beginning to develop. As such, many relevant companies have yet to earn a profit after investing heavily in research and development. However, breakthroughs in any of these studies and products still promise great potential returns to shareholders.
Future Outlook of Psychedelic Stocks
The psychedelic industry will continue to grow and innovate in the coming years. Notably, the ultimate driver behind the psychedelic industry growth is the demand for more effective mental health options. As such, stock ownership or ETFs that track the industry may benefit investors looking for alpha.
Importantly, one must always watch for ETFs with high fees that may deplete an ultimate return. Remember that innovation doesn’t always lead to profits for shareholders.
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