It took a half century for psychedelic drugs to move from elliptical allusions in the pop songs of my youth (Day Tripper, White Rabbit, Purple Haze, Lucy in the Sky With Diamonds…the list is endless) to mainstream medical research. But the transformation is finally happening.

And psychedelics are going corporate, too. For investors who seek the “next big thing,” these developments are exciting news.

Let’s turn our attention away from rock music to neuropsychopharmacology.

Neuropsychopharmacology is a fancy word for the study of the neural mechanisms that drugs act upon to influence behavior. One of the hottest areas of research in this field is psilocybin fungi, aka magic mushrooms or “shrooms.” This research is paving the way for the creation of a huge and profitable industry.

Psilocybin fungi are mushrooms that contain a naturally occurring psychoactive and hallucinogenic compound called psilocybin. Magic mushrooms create altered perceptions of reality, causing users to see, hear, and feel sensations that don’t really exist outside of the mind’s eye.

But magic mushrooms aren’t just for getting stoned and staring at lava lamps. Empirical research shows they can help ease physical pain, depression, anxiety, chronic headaches, and a host of other ailments. Magic mushrooms are destined to play key roles in the future of therapy, in medicine and psychiatry.

Case in point: In a recent issue of Neuropsychopharmacology, the most influential publication in the field, scientists released a first-of-its-kind study that shows how magic mushrooms “dissolve the ego” (using layman’s language) in a benign way that opens the door to treating psychological disorders.

The authors of the magic mushroom study wrote:

“Implications of these findings also extend far beyond understanding the neurobiology of the acute psychedelic experience and drug-induced ego dissolution. There is growing evidence that psychedelics can provide therapeutic relief for individuals suffering from increasingly common and difficult to treat disorders such as depression, anxiety, addiction, and post-traumatic stress disorders. Thus understanding the mechanisms by which psychedelics provide symptomatic relief may identify novel therapeutic targets. Interestingly, the degree of ego dissolution has been found to correlate with long-term clinical outcomes and increases in well-being.”

Research on magic mushrooms is accelerating. Notably, Johns Hopkins Psychedelic Research Center is studying the possible beneficial effects of psilocybin on Alzheimer’s patients.

The legal landscape…

The U.S. Department of Justice lists psilocybin as a Schedule I controlled substance. “Scheduling” is a system by which the U.S. Drug Enforcement Agency decides which substances are dangerous and which substances are medically useful. The Controlled Substances Act, the legislation surrounding the scheduling system, was created in 1970.

Official federal policy (erroneously) states that psychedelic fungi have no medicinal properties and are prone to abuse. Accordingly, it’s illegal to cultivate or possess psilocybin producing mushrooms for either personal consumption or distribution. The prohibition is a legacy of the War on Drugs launched by the Nixon administration.

Magic mushrooms are currently legal in Brazil, Bulgaria, Jamaica, the Netherlands, and Samoa. Many other countries have decriminalized the possession and cultivation of mushrooms.

In the U.S., psychedelic substances such as magic mushrooms and LSD remain illegal at the federal level as Schedule I substances. But the state laws are rapidly changing.

California officials on July 14 gave the green light to a grassroots campaign to initiate signature gathering for a 2024 ballot initiative to legalize the possession, sale and regulated therapeutic use of psilocybin.

Not only is California a cultural trend-setter for the rest of the country, but if it were a sovereign nation, it would be the world’s fifth largest economy. Psychedelics legalization in the state would unleash a torrent of investor cash into developing these substances for medicine and recreation.

The California cities of Oakland and Santa Cruz have already decriminalized psilocybin and other psychedelics. San Francisco (as you might expect) is moving in that direction as well.

After historic state-wide legalization victories in Colorado and Oregon, the campaign to expand public access to psychedelic drugs is now moving to additional states in 2023 and 2024.

Mushroom advocates throughout the nation are pushing for wider decriminalization, in a trend that brings to mind the early efforts to normalize marijuana laws.

A New York lawmaker recently introduced a bill in the State Assembly to decriminalize psilocybin mushrooms by removing the main active ingredient from the state’s list of controlled substances.

A Vermont lawmaker has introduced legislation to decriminalize psychedelics and an Iowa legislator has called for the legalization of psilocybin in another bill.

A statistical model recently published in the Journal of American Medicine (JAMA) predicts that most states will allow access to psychedelics over the next 10-15 years.

A bipartisan coalition of lawmakers last week introduced in Congress an amendment to a spending bill that would expedite scientific research into the therapeutic benefits of certain psychedelics, including psilocybin and MDMA.

The lawmakers’ amendment is designed to encourage the VA to carry out “large-scale studies” into drugs like psilocybin and MDMA that the U.S. Food and Drug Administration (FDA) has designated as “breakthrough therapies.”

According to news reports in June, President Biden is “very open minded” about the legalization and use of psychedelics as medicine.

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A magic mushroom industry is beginning to take shape. It helps that recent research by the respected medical journal The Lancet shows mushrooms to be a relatively benign recreational drug. You’ll notice that good old fashioned alcohol leads the pack as the most dangerous, ahead of heroin and crack cocaine (see chart).

High hopes for IPOs…

Several biotechnology firms that seek to develop medical treatments from psychedelic drugs have recently gone public on Canadian stock exchanges. Most of them are focusing on psilocybin.

An increasing number of neuro-pharmaceutical companies are operating clinical drug trials of psychedelic treatments and some have even gotten the green light for testing from the FDA. These trials are a legal means for fledgling for-profit companies to perform research on otherwise illegal drugs.

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Marijuana has undergone a similar transition from illicit substance to miracle wonder drug. As the medical benefits of marijuana become increasingly apparent, a wave of states and cities are legalizing cannabis.

Now it’s the turn of magic mushrooms, a class of drug that’s taking nascent steps into becoming an everyday consumer product.

Watch this space for emerging investment opportunities in psychedelic drug treatments. They’ll be a fast trip to profits.

As cannabis and psychedelics enter the mainstream, some related equity investments are superb. But many others are not. You need to conduct due diligence.

That’s where my publication, Marijuana Profit Alert, comes in. By applying my proprietary screening methodologies, I pinpoint for subscribers the most attractive plays on the psychotropic revolution. To learn more, click here.

John Persinos is the chief investment strategist of Marijuana Profit Alert.

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