I came of age in the late 1960s and early 1970s, which means I’m no stranger to recreational drugs, from pot to psychedelics. Like, I’ve seen things, man… and I could tell you some stories. Through it all, though, I was fascinated with the idea of psychedelics. I still am.

Tough to believe, but back then, LSD was still legal; research was going full-bore. And I understood these drugs had promise – real promise.

But that all ended in October 1968, when the federal government made it illegal to possess the hallucinogen.

Image Source: Unsplash

Not surprisingly, a lot of very promising research slowly died. I’ve been following with interest what little research there has been in the meantime; not only is it interesting to me, but it’s part and parcel of my job as Chief Investment Strategist.

So, I wasn’t a bit surprised when, this past week, The New York Times broke news of an important, successful FDA phase 2 clinical study into the use of MDMA to treat severe post-traumatic stress disorder (PTSD) – “There is nothing like this in clinical trial results,” a neuroscientist said.

This is fantastic news for people suffering from a whole range of mental health conditions, but, and I’ll show you why, I think this is the ground floor of a market that could be worth more than $29 billion by the end of the decade.

Call it the “New Biotech,” or the “Shroom Boom,” – what you need to know is scientists are doing bold work, and several small companies are actively working in this space. They’re racing to harness and develop the, shall we say, “sky-high” potential of once-forbidden substances. It’s not at all dissimilar to what’s happening in cannabis right now, except the profit potential is even bigger.

The bottom line: I think folks in the right “psychedelic stocks” today are in position to clean up – the trip of your life – as this moves out of labs and into doctors’ offices. You’ll get the chance to learn about four companies I’m watching like a hawk in this space.

I’ll lay it on you straight…

Everything Old Is New Again in the “Shroom Boom”

Fascination and experimentation with psychedelics isn’t new. In fact, it’s very old. Caves in North Africa and on the Iberian Peninsula, dating back to 4,000 BCE, were decorated with drawings of animals and mushrooms, which anthropologists say were likely “magic mushrooms.”

From 1300 CE to 1521 CE, Mexico’s Aztecs incorporated psilocin and baeocystin-laced mushrooms, which they called “flesh of the Gods,” in rituals and ceremonies.

Today, what we know about psychedelics is that they come in two forms:

• Lab-derived “synthetics” like MDMA (ecstasy or molly), ketamine, phencyclidine (PCP), and LSD, synthesized from the ergot fungus that grows on grains.
• “Entheogens” – psychedelics derived from plants.

In 1897, Swiss chemist Albert Hofmann isolated mescaline from peyote, which native tribes up and down the Americas had been familiar with for centuries. In 1901, Jean Dybowsky and Edouard Landrin isolated ibogaine, a naturally occurring psychoactive that’s now being researched as a cure for drug addiction.

Laboratory-derived psychedelics originated in 1912 when German chemist Anton Kollisch created MDMA, which now goes by the street names “molly” and “ecstasy.” In 1938, Hofmann synthesized LSD – and discovered its hallucinogenic properties five years later. In 1958, Hofmann discovered psilocybin in dozens of mushrooms belonging to the genus psilocybe, hence the name.

By the early 1960s, psychedelics were a counterculture mainstay – especially in California. Underground LSD factories, the road-tripping Merry Pranksters, and San Francisco’s “The Psychedelic Shop” promoted the use of these drugs and dramatically raised their profile. This exposure, along with counterculture exaltations to “turn on, tune in, drop out” created hard pushback on hallucinogens.

In 1966, California criminalized LSD. Two years later, the 1968 Staggers-Dodd bill made possession of psychedelics illegal. Then, in 1971, the United Nations categorized LSD, MDMA, and DMT as “controlled substances.”

Taking its cue from the U.N., Washington enacted the Controlled Substances Act, mandating the U.S. Drug Enforcement Agency’s (DEA) “scheduling” of controlled substances along with legal drugs. Schedules are based on a drug’s medical value and its potential for abuse. If a drug can be abused, it’s put on a schedule.

Heroin, LSD, magic mushrooms, ecstasy, and, yes, marijuana, are Schedule I drugs. Schedule II drugs include cocaine, methamphetamine, oxycodone, Vicodin, Ritalin, and Adderall.

That Schedule I designation of hallucinogens essentially stopped what had been a few decades of robust research into possible beneficial medical uses of the entire class of psychedelics.

In the last few years, however, the renewed interest in these drugs has jump-started research on the part of stalwart scientific and medical explorers with the fortitude to surmount the huge obstacles involved in researching Schedule I chemicals.

In 1980, according to data derived from the FDA, Health Canada, Psychedelic Research Publications, and the Special Education Data Reporting Application (SEDRA), there were just 50 papers published on psychedelics.

What few knew at the time – and what researchers are thankfully looking into now – is how effective these substances can be in addressing a multitude of emotional, mental, and physical disorders and illnesses.

Research and Trial Results Are Beyond “Promising”

And research has really ramped up since 1980 – no less than 700 scholarly papers were published last year.

Top-tier, world-class institutions are heavily into psychedelics research. For instance, John Hopkins, NYU, and Imperial College London are funding programs to study the efficacy of using psilocybin, lysergic acid diethylamide (LSD), and MDMA (3,4-methylenedioxymethamphetamine) as treatment options for those struggling with their mental health.

A few recent studies in particular have captured my attention. Not only do they represent hope for suffering people, but they’ve sent dollar signs dancing in front of my eyes – more about that in a second.

In 2017, the Multidisciplinary Association for Psychedelic Studies (MAPS) was granted Breakthrough Therapy Designation for MDMA-Assisted Psychotherapy for PTSD, on Special Protocol Assessment for Phase III clinical trials. Breakthrough Therapy is a special U.S. Food and Drug Administration designation that accelerates the development of drugs with the potential to leapfrog existing treatments.

Early this week, The New York Times reported results of the MAPS-sponsored MDMA-assisted therapy study. The results found that 88% of those taking the MDMA-assisted treatment experienced a clinically significant reduction in symptoms. In fact, 67% of them no longer qualified for a PTSD diagnosis after three MDMA-assisted therapy sessions, compared to just 32% in the placebo group.

Barring any change in the trajectory of the research, we could see FDA approval of MDMA to treat PTSD in the relatively near future – with approval for psilocybin, the hallucinogenic compound found in many “magic mushrooms,” to treat various conditions, following that.

Jennifer Mitchell, a neuroscientist at the University of California, San Francisco, and a researcher involved with the PTSD study I talked about earlier, said, “this is a wonderful, fruitful time for discovery because people are suddenly willing to consider these substances as therapeutics again, which hasn’t happened in 50 years.”

This Has Multibillion-Dollar Real World Impact

For me, psychedelics are so alluring because the potential is widespread, impactful, and easy to quantify. We’re talking about potential treatments for mental health disorders such as PTSD, treatment-resistant depression, drug and alcohol abuse, eating disorders, and end-of-life anxiety.

Frankly, it’s about time.

Of course, there’s the heavy, even horrific human toll of these afflictions. That’s probably impossible to quantify and, besides, that discussion is probably best left to mental health professionals.

What is quantifiable is the cost to the public and private sector.

Take anxiety – a common enough condition. Globally, 284 million people are afflicted. In terms of bottom lines, the lost productivity alone costs us $1 trillion. The outlays for drugs used to treat this malady add another $4.7 billion to that tally.

The treatments for depression, attention-deficit hyperactivity disorder (ADHD), and addiction are just as expensive, costing an additional $9.6 billion, $9.5 billion, and $5.8 billion, respectively, on a worldwide basis.

That’s some serious coin. And the treatments, expensive as they are, frankly aren’t doing such a hot job easing the suffering of family members, friends, co-workers – or even ourselves.

And this is just one example of a potentially huge market.

According to Data Bridge Market Research, the market for psychedelic drugs could grow from about $2.01 billion last year to $6.86 billion in 2027 – a compound-annual growth rate (CAGR) of 16.3%.

Other forecasts are even more upbeat: ResearchAndMarkets Inc. says this opportunity will zoom from $4.75 billion last year to $10.75 billion in 2027.

From all the years I’ve spent doing this, I can say one thing with confidence: In paradigm-shifting markets like this one, forecasts of this kind often understate the upside and the growth-rate potential.

For instance, if you take the drug markets for just the four maladies we talked about a moment ago, you’re talking about an aggregate opportunity of $29.6 billion – a total that’s more than double the ResearchAndMarkets forecast.

Now, the obvious way to play this development is the SPDR S&P Biotech ETF (NYSEArca: XBI). The timing is pretty fortuitous, too; the sector has taken some heavy fire lately courtesy of worries over Pfizer Inc. (NYSE: PFE) and Moderna Inc. (Nasdaq: MRNA) mRNA vaccine patents. This is a good dip to buy – and a trend you definitely want to ride.

But there are some even better direct plays on the “Shroom Boom.” These companies haven’t exactly hit the S&P 500 yet; we’re still in “ground floor” territory.