Investing in Psychedelic Stocks

Psychedelics have gone from a countercultural fad of the 1960s to mainstream medicine in the 2020s. Quite a few psychedelic pharmaceutical companies are developing drugs that follow the legal, regulatory pathway to approval. Hallucinogens, including psilocybin, are showing considerable promise in treating illnesses such as depression and schizophrenia.

Several of these drugmakers are publicly traded and receiving increased attention from investors. We've seen a similar phenomenon with marijuana stocks over the past several years. Cannabis was once on the fringe but is now a significant and growing industry.

Whether you call them magic mushroom stocks,' shroom stocks, or psilocybin stocks, psychedelic stocks are hot right now. Let's explore six of the best publicly traded psychedelic companies on the market today.

Best psychedelic stocks

Best psychedelic stocks

Psychedelic stocks are simply healthcare stocks focused on the use of hallucinogens to treat diseases. Because the area is still relatively new, most of these companies have relatively low market capitalizations. However, many are growing rapidly. Here are six of the top psychedelic stocks:

1. Atai Life Sciences

1. Atai Life Sciences

With prominent backing from venture capitalists, including billionaire Peter Thiel, it's unsurprising that Atai Life Sciences ranks as one of the biggest biotech stocks focused on psychedelic drugs. Founded in 2018, the company went public in June 2021. Atai has also acquired or made significant strategic investments in several other psychedelic companies.

Atai's pipeline features seven programs in clinical testing. The company's lead candidate, RL-007, is being evaluated in a phase 2 clinical study as a potential treatment for schizophrenia.

Atai's Perception Neuroscience unit teamed up with Japanese drugmaker Otsuka (OTSK.Y 1.2%) to develop R-ketamine for treating depression. It's the first major collaboration between a psychedelic-focused biotech and a big pharma company. Atai is also one of the largest shareholders in Compass Pathways, the next psychedelic drugmaker we'll look at in this list.

2. Compass Pathways

2. Compass Pathways

Compass Pathways' roots go back to 2015. That's when George Goldsmith and Ekaterina Malievskaia founded a nonprofit organization, Compass Trust Limited, to support the research and development of psilocybin therapy for individuals with end-of-life anxiety.

Their efforts led to Compass Pathways becoming a for-profit company the following year. The company listed its shares on the Nasdaq stock exchange in September 2020.

The drugmaker is currently conducting two phase 3 studies evaluating COMP360 in treatment-resistant depression. Results from the first of these studies are expected in the summer of 2024. COMP360 is Compass Pathways' only pipeline candidate.

There are also other diseases for which COMP360 could be used. At the Institute of Psychiatry, Psychology & Neuroscience (IoPPN) at King's College London, Compass Pathways has initiated a phase 2 study of the experimental therapy in treating post-traumatic King's disorder (PTSD). Additional investigator-led studies are also underway for other indications, including major depressive disorder.

3. Cybin

3. Cybin

Founded in 2019, Cybin went public in 2020 on Canada's NEO Exchange through a reverse takeover of Clarmin Explorations. Its shares began trading on the New York Stock Exchange (NYSE) in August 2021.

The company reported positive results in November 2023 for its lead candidate, CYB003, in a phase 2 clinical study targeting the treatment of major depressive disorder. It also announced positive results in January 2024 from phase 1 clinical studies of CYB004 and SPL028 in treating generalized anxiety disorder.

Cybin picked up SPL028 through its October 2023 acquisition of Small Pharma. The transaction also added Small Pharma's experimental psychedelic drug, SPL026, to Cybin's pipeline.

4. Mind Medicine

4. Mind Medicine

Mind Medicine (also known as MindMed) was the first psychedelic drugmaker to conduct an initial public offering (IPO) on Canada's NEO Exchange in March 2020. The company had been founded less than a year earlier, in May 2019.

MindMed is evaluating its lead candidate, MM-120, in phase 2 clinical studies targeting generalized anxiety disorder and attention-deficit/hyperactivity disorder (ADHD). It's also advancing MM-402 into phase 1 clinical testing in treating autism spectrum disorder.

5. Numinus Wellness

5. Numinus Wellness

Numinus Wellness has been in business since 1964. Its Numinus Biosciences unit provides services, including cannabis testing, and develops psychedelic drugs. Numinus Health, which acquired Mindspace Wellbeing in February 2021, operates centers where therapists primarily help patients with mental health and substance use problems.

The Multidisciplinary Association of Psychedelics (MAPS) published results in September 2023 from a phase 3 study of experimental psychedelic therapy methylenedioxymethamphetamine (MDMA), also known as ecstasy, in treating post-traumatic stress disorder (PTSD). Numinus plans to offer MDMA-assisted therapy once regulatory approvals are granted.

6. Seelos Therapeutics

6. Seelos Therapeutics

Seelos Therapeutics, founded in 2016, merged in January 2019 with Apricus Biosciences, which was already publicly traded. The resulting entity, comprised primarily of Seelos' business, took Seelos' name and changed its ticker symbol on the Nasdaq from "APRI" to "SEEL."

The company's pipeline includes two programs in clinical testing. In September 2023, Seelos reported results from a phase 2 study of intranasal ketamine drug SLS-002 in treating acute suicidal ideation and behavior in patients with major depressive disorder.

SLS-005 (intravenous trehalose, a sugar containing two glucose molecules) is in phase 2b/3 testing for treating the neurological disease amyotrophic lateral sclerosis (ALS). It's also in phase 2 testing for treating the neurodegenerative disorder spinocerebellar ataxia type 3.

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Risks and rewards

Risks and rewards

None of the six psychedelic drugmakers has approved therapies on the market yet. There is a risk that pipeline candidates will be unsuccessful in clinical testing. Even if the drugs prove safe and effective in clinical studies and win regulatory approvals, it’s still possible they won’t achieve commercial success.

Also, none of the companies has reached profitability yet. They might need to raise additional capital through stock offerings that dilute the value of existing shares.

On the other hand, there are reasons to be optimistic about the potential for psychedelic substances in treating various neurological and psychological disorders. It’s still early days, but any or all of these leading pharmaceutical stocks could become big winners over the next few years.

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