Are We Entering A Shroom Boom?

Are We Entering A Shroom Boom?
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Since marijuana was legalized in many states across the country, the legal marijuana industry has grown to $13.6 billion creating 340,000 jobs in the sector. Investors and entrepreneurs saw a rich business opportunity in recreational cannabis. The money came pouring in and startups on everything from CBD and THC-infused lube to Uber for weed exploded onto the scene. According to cannabis industry research firm, Viridian Capital Advisors, marijuana startups raised $116.8 billion in 2019. Many called this “The Green Rush”.

But in just half a decade the cannabis market has become saturated. The easing of restrictions made creating a new cannabis product much easier and thus the market has become noisy with many competing businesses, each trying to carve out their niche consumer. With a crowded cannabis market, investors have started looking towards another previously taboo substance that’s in the midst of a startup renaissance—the psychedelic mushroom.  Are we entering a new wave of the “Shroom Boom?”

Just as medical marijuana laws were the first sign of an upcoming revolution in cannabis, psilocybin is experiencing a shift as psychedelics and especially psychedelic therapeutics gain acceptance and momentum. Denver, Santa Cruz and Oakland have all decriminalized psilocybin and in 2020 New York City became the first city to have a legislator introduce a decriminalization bill, rather than an activist group. 

These types of policy changes, along with recent FDA approval of a ketamine derivative for PTSD, have investors perking up their ears for potential business opportunities. 

“A decision [like that] by FDA is the ultimate signal for investors,” said Brad Loncar, a biotech investor with Loncar Investments told CNBC last year. “It shows that there’s a regulatory path forward for this class of drugs, which typically causes a flood of investment in the area.”

It’s unlikely psychedelics and psilocybin will be approved for recreational use, which could actually be a positive for investors. Research trials, regulations, and approvals are undesirable and costly barriers to entry for many small scrappy startups. So unlike the cannabis sector, the psilocybin market won’t have a deluge of competition. Focusing on the pharmaceutical sector is also a recipe for much higher margins and profits. 

Pharmaceutical companies and investors alike are starting to take notice, hoping to capitalize on the moment. Along with Jonhson and Johnson’s ketamine product, Toronto-based company Pharmadrug announced its intent to buy Super Smart, a startup geared towards psychedelics. Revive Therapeutics acquired Psilocin Pharma to give itself a foothold in the space. Last year in Europe, investors coughed up enough money to ATAI Life Sciences for it to be the largest private financing round for a psychedelic medicine biotech company, $43 million to be exact. In 2018, The FDA awarded the Breakthrough Therapy designation to Compass Pathways’ psilocybin therapy for treatment-resistant depression. And MindMed, a leader in the pharmaceutical psychedelics space, went public in March just after raising $24 million ahead of its IPO. And the publicly traded companies focusing on psilocybin, like Champignon Brands, Mind Medicine and Revive Therapeutics have become the hottest stock buys for investors. 

This spurt of energy and the injection of money into psychedelic companies has been coined the ‘Shroom Boom.’ But for a substance that for decades awakened a rejection of capitalist systems in its users, we will have to see what happens when the capitalists come knocking with wads of cash in hand. 

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