Can the Psychedelic Therapeutics Market Take Over Cannabis?

Psychedelics may find a smoother path toward federal legalization than cannabis has.

In this segment from Backstage Pass, recorded on Feb. 4, Motley Fool contributor Rachel Warren speaks with Tim Schlidt, co-founder and partner at psychedelic investment fund Palo Santo, about his work to help increase the supply of clinically effective and accessible mental health and addiction treatment solutions. Schlidt explains why he believes the pathway to federal legalization for psychedelics is much clearer than the approach cannabis is taking, for a multitude of reasons.

Rachel Warren: Psychedelic therapeutics, they are starting to gain broader recognition in the mainstream medical community. But at the same time, these treatments are still viewed by many with caution given their potential for abuse and even long-term negative outcomes in some cases. On the other hand, as we've been discussing, Wall Street seems to really be quite bullish about this space. This reminds me in some ways of how many investors have approached cannabis industry, which also as you mentioned faces a quasi legal landscape. I'm curious, do you think that the psychedelic therapeutics market could eventually outpace that of the cannabis market?

Tim Schlidt: I'm hesitant to say, it depends on how we define out pace, of course. I think from a market sizing standpoint, if cannabis could replace alcohol, the market potential there is very, very large. I will concede that point. Where I think this could certainly outpace cannabis is again from a regulatory perspective. I think the pathway to federal legalization is much, much better than the approach cannabis is taking for a multitude of reasons. That FDA pathway to DEA rescheduling I think is very superior. I forgot to mention earlier, we've seen a lot of case studies where this has occurred previously, be it Epidiolex, Marinol, Syndros, Xyrem, there's a lot of now-prescribed medications that were scheduled and got rescheduled upon FDA approval.

Also cannabis, even if you do achieve federal legalization, it's gone by such a state-by-state pathway that I think states are going to be hesitant to give up their tax revenue around cannabis. You're going to see this whole messy patchwork of state regulations versus federal regulations that you're just not dealing with that nearly as much here. It's a lot cleaner as a pathway. They will certainly outpace cannabis I think in terms of their timeline to market. We're seeing that already with maps advancing MDMA for PTSD, that will likely hit the market in 2023. Compass Pathways with psilocybin for treatment of resistant depression likely 2025 that that hits the market. It's within the next few years we could see psychedelics being prescribed for medical applications.

One other comment I'll make, just your comment on potential for abuse. I actually think psychedelics are much better than many known medications that are prescribed. Even we now know cannabis, there is some physical dependency around cannabis. With psychedelics, there's no physical dependency, at least for the classic psychedelics like an LSD, a mescaline, a psilocybin, since these are much more serotonin-based rather than dopamine-based, you don't really induce addictive behavior. Usually, any medications that activate your reward system, which is largely dopamine receptors and operating on those neurons, that's where you tend to see more abuse potential. We also know opioids as well, very potent opioid receptors.

I actually think in terms of receptivity to a lot of psychedelics is the scientific data continues to catch up. People are going to realize, holy crap, these are better than legal medications or substances, whether it's opioids, alcohol, cannabis, you name it, and I think the consensus is quickly catching up around, that these are actually remarkably healthy in a lot of ways.