Is there a business case for magic mushrooms? – MarketWatch

Psychedelics are coming to market and Wall Street wants in. Plus, how legalizing magic mushrooms in Oregon will look.
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Daniela Hernandez: The connections in our brain guide our everyday behavior, sometimes in ways that we don't understand. If we're able to harness changes to our betterment for our health, I think that's really, really, really promising.
Stephanie Kelton: Welcome to the Best New Ideas In Money, a podcast for MarketWatch. I'm Stephanie Kelton. I'm an economist and a professor of economics and public policy at Stony Brook University.
Charles Passy: I'm Charles Passy, a reporter at MarketWatch.
Stephanie Kelton: Each week we explore innovations in economics, finance, technology, and policy that rethink the way we live, work, spend, save, and invest.
Charles Passy: This week we're starting in Oregon. Earlier this month, legal use of hallucinogenic mushrooms began in Oregon. In 2020, the state voted to legalize psilocybin. That's the psychedelic compound found in certain types of mushrooms. In the November election last year, Colorado followed in Oregon's footsteps.
Speaker 4: Magic mushrooms will soon be legal here in Colorado now that Prop 122 has officially been passed by voters.
Stephanie Kelton: Several other states are also considering some form of psychedelic legalization, and it's not just mushrooms that are going mainstream.
Charles Passy: I got to say, Stephanie, psychedelic seems like one of the buzziest topics right now. There's even a Netflix documentary series about them. It's called How to Change Your Mind.
Speaker 5: Mescalin, psilocybin, MDMA, LSD.
Speaker 6: For a lot of people, this was the bad and evil drugs, but the opposite is true. There are really people who could benefit.
Stephanie Kelton: Some top universities are setting up psychedelic research centers, and investors are taking notice too.
Daniela Hernandez: Because we're in a mental health crisis and there haven't been drugs approved for things like depression and PTSD for a long time, people are very, very excited about the prospect of psychedelics to treat those conditions which cost the healthcare system and the economy a lot of money.
Stephanie Kelton: That's Daniela Hernandez, a science reporter at The Wall Street Journal, who covers psychedelics.
Daniela Hernandez: The reason that people are really excited about this is because it presents a new class of medications, so it opens up a whole new market. There's a lot of investment in this space, both on the research side and the corporate side.
Stephanie Kelton: How much money are we talking about here? Well, according to research by Insight ACE Analytic published last year, the global psychedelic therapeutics market was valued at just over three and a half billion dollars in 2021. In five years, it's expected to reach more than $8 billion. Now, there are many psychedelic compounds. The ones getting most of the attention are LSD, MDMA, mescalin, and psilocybin. While they each have distinct impacts, the effect of psychedelics overall can be explained by how they affect the brain.
Daniela Hernandez: They basically make your brain more adaptable. Scientists use this term called plasticity, and that means that, like a plastic, you can mold it into whatever. When you take these drugs, your brain becomes more malleable and you are almost able to learn new things better.
Charles Passy: Take MDMA, for example, also called Molly or ecstasy. It's probably best known as a club drug, but some research shows that it can help treat severe post-traumatic stress syndrome, or PTSD. A 2021 study of MDMA published in the journal Nature Medicine called it highly efficient, safe, and well tolerated.
Stephanie Kelton: Psychedelic treatments are often paired up with some kind of therapy before, during, and after you take the drug,
Daniela Hernandez: You are going to go through potentially reliving some traumatic events, opening up feelings that maybe you were having a hard time dealing with. The idea is that having somebody there to guide you through that. It's similar to what you would do if you were getting "normal therapy," but you are under the influence of a drug. Then before and after, you also have these therapy sessions when you're sober. The idea there is to talk about what you experienced during the trip so that you can reconcile that and integrate that into your identity, the way you think about yourself, the way you think about the world. There's research showing that certain psychedelic substances, MDMA is the one that's been most studied, under these conditions where you're with somebody who is treating your mental health, it has a lot of potential to treat psychological conditions like depression, alcohol use disorder, post-traumatic stress disorder as well.
Stephanie Kelton: Hernandez says that's just one of the things that makes psychedelic therapy different from conventional thinking about medicine.
Daniela Hernandez: Right now, when you're taking an antidepressant, for example, it's something that you take daily. One of the big promises of psychedelics is that you don't take them daily. You take them maybe just once or a couple of times, and then maybe you go in for "a booster" months after the fact. It really cuts down in theory the amount of medication that you have to take. That's a big source of excitement and promise for these drugs.
Charles Passy: While there's a lot of excitement, there are also a lot of unanswered questions.
Daniela Hernandez: Are people using it correctly? Is the dosing okay? How are you assuring that the person has the support that they need during their trip and afterwards? Because again, these experimental drugs could open up a lot of traumatic experiences or be traumatic on their own if a person isn't prepared for what the experience might be like. There's a lot of concern about how they're used, because even though they have the potential to help people, if they're not in the right setting, if they're not mentally prepared for what they might experience, it might actually be counterproductive.
Charles Passy: Psilocybin for mushrooms and other psychedelics are considered schedule one substances. That means they are currently considered to have no accepted medical use and a high potential for abuse, and they are effectively illegal for anything outside research.
Stephanie Kelton: But, we mentioned how states like Oregon and Colorado have legalized magic mushrooms. We'll get into that a little later.
Charles Passy: First, we'll look at how psychedelics could become legal and regulated pharmaceuticals. Drug companies usually create a synthetic drug based on the natural psychedelic compound.
Ritu Baral: It involves multiple rounds, multiple stages of placebo controlled randomized clinical trials. To get drugs approved in the US and Europe for neuropsychiatric indications, it requires thousands of patients of safety experience, usually efficacy experience as well.
Stephanie Kelton: That's Ritu Baral, a senior biotech analyst at Cowen. She covers biotech stocks, including several companies that are developing psychedelic drugs. We asked Baral to walk us through the three stages of clinical trials that drugs go through.
Ritu Baral: Usually you start with phase one, making sure something's safe. You move to phase two where you generate what's known as proof of concept, where you decide this does something, it has a clinical benefit, and this is the most likely dose to be useful clinically. Then you go to the confirmatory stage, these very, very large phase three trials, which are essentially designed to confirm X benefit with X safety. Then that phase three data is what you take to the FDA in an application and say, "This risk-benefit ratio makes sense for these patients. We would like marketing approval." The FDA goes through the whole dataset, focus on phase three, but also looks at phase one and phase two, and then decides, yes, this is coherent, comprehensive data. The safety is established. It doesn't necessarily mean things have to be perfectly safe. It just has to mean you know what you're dealing with. You're dealing with X risk for Y benefit, and that ratio makes sense for these types of patients.
Charles Passy: Baral says if a schedule one drug receives FDA approval, it's up to another regulator, the Drug Enforcement Administration, or DEA, to then reassess it.
Ritu Baral: What usually happens is it goes from class one to class two. Class two is where there are serious risks and tolerability concerns, however, there is ascertained clinical benefit, but these substances do need to be administered in a very controlled fashion.
Stephanie Kelton: To understand that whole process better. We spoke to a biotech company currently developing a new psilocybin drug.
Kabir Nath: The first thing to say is the drug we are working with is our own proprietary formulation of psilocin, which is found in magic mushrooms. But, we have a synthesized formulation. No mushrooms are harmed in the creation of our synthetic chemical.
Stephanie Kelton: That's Kabir Nath, CEO of COMPASS Pathways, a London-based public company.
Kabir Nath: Our studies so far principally have been in patients with what is called treatment resistant depression. These are patients who, in their current episode of depression, have failed at least two antidepressant treatments.
Charles Passy: The drug is in the form of a capsule, taken orally. The session when the drug is administered lasts between six to eight hours.
Kabir Nath: In the phase three trials, there will be a professional licensed therapist who has undergone 40 to 50 hours of training specific to that in the room with the patient all the time. But, they are not providing directional therapy. They are there to assure patient safety, if necessary to redirect the patient back into the experience, but they are not providing therapeutic interventions. We at COMPASS are not providing psychotherapy alongside the drug. Essentially, our focus is on the drug therapy. We actually take our first readings of depression scores the very next day, and what we saw in the phase 2B is for those patients who do respond, that response is profound and immediate within that next day.
Stephanie Kelton: Nath says 37% of the patients who received a 25 milligram dose saw a positive response to the drug at three weeks, and close to 20% retained that response through to week 12. He calls those results strong, especially considering that the patients in question have failed multiple approaches to treatment before.
Charles Passy: As companies like COMPASS work out their process, they have to consider not only developing the drug, but developing a treatment model that includes some level of handholding, monitoring, or therapy.
Stephanie Kelton: Charles, that makes me wonder, if you take this drug while you're receiving some level of therapy, how do you know how much of the potential impact is from the actual drug and how much is the therapy you might be getting alongside it?
Charles Passy: Yeah. On top of that, the nature of the therapy and how much is required if the drug is approved will be crucial in deciding pricing and setting up the logistics for treatment. Daniela Hernandez, The Wall Street Journal reporter we heard from earlier says, clinical trials are often double blind, which means some of the participants are receiving the real drug and others are receiving inactive or placebo drugs. Neither the participants nor the people running the trial know who received what. Hernandez has an interesting story that illustrates how it can be hard to tell what's the drug and what's, well, everything else.
Daniela Hernandez: Because there's the excitement, there's the knowledge that you've gone on the trip, all of that sort of builds expectations on its own around the effectiveness of these medications, of these drugs. That could be causing at least some of the effects we're seeing. I mean, I talked to one person who went through a trial, psilocybin assisted therapy for alcohol use disorder, and he had a really eye-opening, life-changing experience. It wasn't until the very, very end that he was told that he actually did not get psilocybin during the first two sessions of the trial.
Charles Passy: Just to be clear, the person who Hernandez is talking about did eventually get treated with psilocybin, but not in the first two sessions where he was given a placebo.
Daniela Hernandez: Basically the equivalent of high dose Benadryl, and then in the third session they did get psilocybin, everybody. But, he said that his life-altering experience happened during the first or the second session. He says that after that experience, talking to the therapists, getting to know them, just having that support, he stopped drinking and he'd been trying to do that for a really long time, and hasn't drunk at all since he went through that trial.
Stephanie Kelton: We should emphasize that this example was not from any of COMPASS Pathways clinical trials, but it helps to illustrate what we talked about earlier, that there are many unanswered questions as to how these new drugs work. Charles, what do we know about the cost of these drugs, and do we think that health insurance is going to cover these types of treatments?
Charles Passy: Those are really important questions. Ritu Baral, the senior biotech analyst from Cowen says that at the very least, insurance companies seem open to covering the drugs.
Ritu Baral: Our payer consultants have basically said like, look, if it clears FDA and it's reasonably priced and we know the patients it's appropriate for, we can't legally not cover it.
Charles Passy: But, it's all complicated by this treatment potentially not just being about the drugs. For example, there could be mandatory therapy before, during, and/or after taking those drugs.
Ritu Baral: Now, once you start potentially tacking on requirements for consolidation therapy and the price starts going up, insurance payers can turn into animated Excel sheets rather than human beings. But, it will all come down to price versus the number of plan members that they have that are appropriate for this therapy, and that the FDA says could benefit from it.
Stephanie Kelton: Remember how there are three main phases of clinical trials before FDA approval? In October last year, COMPASS Pathways announced that their psilocybin drug for treatment resistant depression was entering the third phase of its clinical trial. It's the first company to reach that stage for psilocybin. If the drug is approved, when can we expect it to be available? Nath says that the company's current guidance is for somewhere in the 2026, 2027 range. It's clear that when or if these types of drugs become commercially available, there's a lot more to be figured out. Here's Daniela Hernandez.
Daniela Hernandez: One big question going forward is, how is this actually going to be implemented, and how will that work or not, and what adjustments will we you need to make? I think the places to watch there will be Oregon and Colorado, because that's where psilocybin clinics are going to be popping up in the very near future.
Charles Passy: On that note, in Oregon, psilocybin treatment centers will be opening this year. But, how exactly might the legalization of magic mushrooms work? That's after the break.
Stephanie Kelton: Welcome back to the Best New Ideas In Money. Before the break, we heard about how psychedelics are trying to make their way into commercial medicine, but as we also heard, there are still a lot of question marks when it comes to how all of this will play out from both a practical, ethical, and business standpoint. One place that might be ahead of the game in figuring out the infrastructure of legalizing psychedelics is Oregon.
Charles Passy: In late 2020, Oregon voters passed ballot measure 109, which legalized psilocybin, the first state in the country to do so.
Angela Allbee: My role is to lead the implementation of ballot measure 109, which was passed by Oregon voters in November of 2020.
Charles Passy: That's Angela Allbee.
Angela Allbee: My title is section manager for the newly created Oregon Psilocybin Services Section.
Stephanie Kelton: While psychedelic mushrooms are technically legal now, people in Oregon won't be able to rush out and start eating them right away. Various people and entities involved in bringing psilocybin products to the public first need to become licensed to set up operations. Earlier this month, on January 2nd, the Oregon Health Authority began accepting those license applications. That includes four types of licenses. One for those who grow the mushrooms or process the psilocybin products. Another for the testing labs, they'll be testing things like potency. The third license is for what Allbee calls the service centers. These are the only places people can consume the mushrooms. Finally, the fourth license is for the facilitator. That's the person supervising the session.
Angela Allbee: That licensed facilitator is present with a client during psilocybin services, which includes a preparation session, an administration session that happens at the licensed service center, and then an integration session that will be offered afterward.
Stephanie Kelton: There's a really important difference between what's happening in Oregon and what we heard about earlier in this episode. In Oregon, the model is not considered medical, clinical, or recreational. But, the Oregon Health Authority does cite benefits of psilocybin for mental health, like how studies suggest that it can address depression, anxiety, trauma, and addiction. Also, while COMPASS Pathways is developing a synthetic psilocybin drug, that's not the case in Oregon. In fact, synthetic psilocybin products are prohibited in the state.
Charles Passy: To put it simply, in Oregon, you eat a mushroom and not a pill?
Stephanie Kelton: Well, kind of. I'll let Angela Allbee explain.
Angela Allbee: The product types that we're allowing, which is really important to this work, include not only the dried whole mushrooms, but ground homogenized fungi extracts and edible food products.
Stephanie Kelton: Something else that's interesting, Charles, is that this seems so much different than the model of legalized cannabis, where you typically go into a dispensary to buy the products, but then you consume them at home.
Charles Passy: Yes, Stephanie, psilocybin can only be consumed at these specific service centers. The psilocybin products are tested for potency, and there's a maximum dose of 50 milligrams per session. Allbee says products will be available to people aged 21 or older. Buying them won't require a prescription or medical referral, but clients do need to complete a preparation session with a licensed facilitator.
Stephanie Kelton: Earlier in this episode, we heard that companies and researchers are still trying to figure out how much therapy is needed alongside the drug itself. Allbee says in the Oregon model, psilocybin services don't involve therapy, but a licensed facilitator that works through what she calls a non-directive approach.
Angela Allbee: That means that instead of guiding the experience of the client, the client is guiding their own experience in the presence and support of a trained facilitator.
Stephanie Kelton: Allbee also says that the preparation time between the client and facilitator is important. They can discuss doses, what kind of experience the client is looking for, and make sure they have a transportation plan to get home safely.
Angela Allbee: It also includes really identifying, sometimes this can be a life-changing experience to consume psilocybin and what supports are in place afterward, because really it's important for people to be thinking about that and making sure they have support through the process.
Charles Passy: The facilitator could also determine that the psilocybin services can't be provided to a client.
Angela Allbee: If someone is actively in a space where they acknowledge that they're thinking of harming themself or others, these are situations where our rules in the client intake process will address some of these questions that come up for clients, and also through the licensed facilitator really identifying if they can serve this client well or if this client might be too much of a risk to access psilocybin services.
Charles Passy: How the setting of consuming the drug looks really depends on the given service center. Allbee imagines there'll be a variety of different settings. The session can, for example, be indoors or outdoors.
Angela Allbee: Some might have beds or couches and eye covers and others might not. Some might have paints available or some kinds of activity for clients. Some clients may want to lay down, some may want to sit, some may want to stand and walk around. I think that each service center will be able to provide a type of experience for clients, and clients will access those psilocybin services based on the experiences they want to have and what they want to have available to them.
Stephanie Kelton: After the session where the drug has been administered, there's an optional integration session, where the client can follow up with the facilitator on their experience. But again, it's not to be confused with counseling or therapy.
Angela Allbee: A lot of folks are in need of processing their experience. Sometimes that can happen with community networks. Sometimes that needs to happen with folks that are creating peer support networks in the psilocybin community and the psychedelic community at large. It can look like many things for many people.
Charles Passy: There's a lot happening with psychedelics, and it's hard to know what to make of it all. Clearly there's a need for new treatments for mental illness, but there's a lot we don't know about how it might play out with legalizing these drugs.
Stephanie Kelton: Exactly. Even though the consumption of some of them will be regulated and supervised in places like Oregon, some experts say the general acceptance of psychedelics might not be without consequences. Federal survey data showed in 2021 hallucinogen use among young adults reached an all-time record. It had gone from 3% reporting using psychedelics in 2011 to 8% in 2021.
Charles Passy: Right, and some doctors worry about this increasing use, especially if young people are using these drugs outside of appropriate settings.
Stephanie Kelton: Let's spend a minute on what the model of consuming psilocybin in the form of mushrooms might cost.
Charles Passy: Yeah, and I know we talked about it in the case of the synthetic drug, that there's a possibility insurance could cover it, but what about here in Oregon and this different model?
Stephanie Kelton: Allbee from the Oregon Health Authority says that, no, insurance doesn't cover the cost of the drug, and prices aren't regulated. They're determined by the licensees. Those are the manufacturers of the products, the service providers, and so on. Allbee can't comment on any concrete pricing yet, but she is able to reference the range that has been discussed previously.
Angela Allbee: People have talked about hoping to provide some lower dose administration sessions between the $200 range or less, up to thousands of dollars for a longer model, retreat models.
Stephanie Kelton: It's still too early to know how many applications the Oregon Health Authority will receive from businesses looking to get into the psychedelic space. But, when they did a community survey last year, it did indicate interest. For example, among the 4,421 surveyed, 20% were interested in service center licensing.
Charles Passy: According to the health oriented news site Stat, several psychedelic related companies are planning to set up shop in Oregon. That includes a company called Synthesis, which offers psychedelic retreats in the Netherlands, and Field Trip, a company which owns a series of clinics used for ketamine therapy.
Angela Allbee: We know that there's lots of interest. We also know that there are a lot of barriers to setting up a psilocybin business and being first in the nation to do so. Part of that is working with a schedule one substance that's still federally illegal. Part of that is because of tax filing issues. Here in the US, if you work with a schedule one substance, you're not able to take tax breaks and write-offs for your business expenses. In addition, there are insurance and banking and security issues. Although cannabis policy really carved a pathway of understanding for this work to come to light for psilocybin, we're still first in the nation to implement this kind of framework, and we know that businesses will have some limitations or some obstacles that many other businesses don't have to address or face.
Stephanie Kelton: Thanks for listening to the Best New Ideas In Money. If you like what you heard, please leave us a rating or review. If you have ideas for future episodes, drop us a line at Thanks to Daniela Hernandez, Ritu Baral, Kabir Nath, and Angela Allbee. I'm Stephanie Kelton.
Charles Passy: I'm Charles Passy. The Best New Ideas In Money is a podcast from MarketWatch. The producers are Michael McDowell, Katie Ferguson, and Medda Lutzoff, who also mixed this episode. Melissa Haggerty is the executive producer. Steven Kutz was our newsroom editor on this episode. The Best New Ideas In Money theme was composed by Sam Retzer. Stephanie Kelton is an economist and a professor of economics and public policy at Stony Brook University, and not part of the MarketWatch newsroom. We'll be back next week with another new idea.


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