- Cannabis is already big business and the industry has continued growth potential.
- With research showing potential medical uses for psilocybin and other psychedelics, many believe that there will soon be legal business opportunities for their production and sale.
- Lessons learned from the rise of cannabis may apply to a future psychedelics industry. Specifically, entrepreneurs should be careful to stay on the right side of changing laws, get creative within those legal constraints, and build a team rather than trying to operate independently.
- This article is for entrepreneurs who are interested in preparing for the legal psychedelics industry.
The American cannabis industry has exploded into a $13 billion dynamo, with all signs pointing to continued growth. Dozens of publicly traded companies are active in the legal cannabis industry, including companies that have been created in recent years as well as industry powerhouses that have seen the opportunity and entered the space. Hundreds more small and midsize startups are thriving as well. Though some questions about cannabis’s future will remain until full federal legalization is achieved, the industry’s rise is undeniable.
As research shows the potential medical benefits of psychedelics, including psilocybin (the psychoactive compound in “magic mushrooms”), many entrepreneurs and analysts see a potential similar rise, particularly for psilocybin. Entrepreneurs who want to enter the space would be wise to learn some lessons from those who have succeeded – and failed – in cannabis.
Why is psilocybin generating so much buzz lately?
Though the use of psilocybin mushrooms for spiritual and psychological reasons predates recorded human history, they have been outlawed in the U.S. since 1971. They are classified as a Schedule I controlled substance, meaning they have “no accepted medical use and a high potential for abuse.” Research into their use was common in the 1950s and ’60s, but the Schedule I designation created massive administrative and financial burdens, as well as stigma, that effectively ended study for decades.
A few pioneering individuals and organizations pushed to show that the designation may be misguided, which has unleashed a new wave of research. Studies are now showing psilocybin’s potential usage for a number of mental health disorders that can be difficult to treat, including severe forms of depression, obsessive compulsive disorder, nicotine addiction, anorexia nervosa and fibromyalgia.
If fully researched and developed, these treatments may be able to help people live happier lives, and manage chronic illnesses that keep them from working. The case for these potential uses is buttressed by the fact that psilocybin appears to be safe, with research showing that negative reactions are rare and generally short-lived.
Policymakers are listening. The 2018 Right to Try Act allows certain doctors to treat terminally ill patients with psychedelics if all other options have been exhausted, and in 2018 the Food and Drug Administration (FDA) granted psilocybin “breakthrough therapy” status, which significantly increases research possibilities. In 13 cities and statewide in Oregon, psilocybin has been decriminalized; although it isn’t legal, these governments have deprioritized prosecuting people for its possession or use.
Some anticipate that this is the beginning of the end of psilocybin prohibition, pointing to the cannabis legalization movement’s roots in decriminalization. Though psilocybin business opportunities could be just around the corner, entrepreneurs should proceed with caution, follow existing laws closely, and be aware that many other companies are already entering the space.
Key takeaway: The research into medical uses of psilocybin is promising, and the legal landscape has become friendlier in recent years.
A changing regulatory landscape
Though it may seem premature to consider the business potential of psilocybin as long as the drug’s Schedule I designation remains, cannabis was once seen as a risky play as well. Only a decade ago, buying marijuana involved breaking the law for most Americans. In 2012, nearly 10% of Americans admitted to consuming marijuana within the past year, but at that time even medical marijuana was available in only a handful of states. In other words, tens of millions of people were buying their cannabis on the black market.
The legal landscape changed quickly. Today, 38 states allow medical marijuana and 19 states allow recreational marijuana (often referred to in the industry as “adult use.”) Even though it was once seen as taboo, 9 out of 10 Americans now believe that cannabis should be legal either for medical use, recreational use or both. More states will likely join the list soon, creating a newly legal market with immense growth potential.
Consumer demand is strong, and an industry is quickly growing to meet it, even as the federal government maintains cannabis’s status as a Schedule I controlled substance. Cannabis is already a $13 billion industry despite that designation, and it is projected to grow at a compound annual growth rate of 25.5% through 2030.
When a customer walks into a legal cannabis dispensary today, they are met with a wide variety of options, including the buds that most smokers would recognize from the pre-legalization era, but also THC- and CBD-infused tinctures, edibles, pain balms, personal lubricants, bath salts and more. Robert Calkin, founder of Cannabis Career Institute, sees even more opportunities on the horizon for innovative cannabis manufacturers.
“We’re going to see specialization, like wine or craft breweries,” Calkin said. “Growers, marketers and retailers will be able to help consumers understand the differences between strains from certain regions, or to identify the right strain for a specific medical issue.”
The cannabis industry’s massive growth and specialization has all occurred under an ongoing federal prohibition. Could psilocybin be next, and if so, what lessons does the legal cannabis industry hold for aspiring entrepreneurs?
Medical vs. adult-use cannabis as it relates to psilocybin
The growth of the cannabis industry has been driven far more by adult use than medical. Psilocybin will likely be different.
Antonio Rojo, CEO of Cannabiz Catalyzers and an entrepreneur who has been active in the early stages of both industries, does not necessarily see the retail operations that are driving the cannabis industry emerging in regard to psilocybin. As Rojo said, “We should be thinking about psilocybin from a pharmaceutical perspective more so than recreational. The research on various treatments is very promising.”
If psilocybin is ultimately relegated to medical use, entrepreneurs should focus on the pharma space, rather than on retail. Where cannabis businesses focus on challenges like expanding their product lines to appeal to adult-use consumers, psilocybin companies would need to concentrate on challenges like obtaining FDA approval and ensuring that doctors understand psilocybin’s use cases.
The line between medical and recreational uses may be blurry, though. A refrain in the cannabis industry that “all consumption is medicinal” is something proponents of psilocybin often embrace as well.
“The research and the documented medical uses are very powerful, but I think nearly anyone can benefit from the six-hour journey of self-exploration that psilocybin can give you,” said Carlos Hermida, owner of the Chillum Mushroom and Hemp Dispensary in Ybor City, Florida.
Ultimately, though, any permissible uses will be up to lawmakers, and entrepreneurs will have to follow suit.
Tip: The recreational cannabis industry is likely not the right analogy for the potential psilocybin industry. Growth is more likely to happen in the medical and pharma space.
How to prepare for psilocybin business opportunities
Getting involved in a space that has long been federally prohibited is no easy task, even if the business opportunities are immense. The following lessons from the legal cannabis industry can inform would-be psilocybin entrepreneurs about the path they should take if they want to get involved in any future psilocybin industry.
1. Monitor legal trends to capitalize on changing laws early.
Any serious potential psilocybin entrepreneur should start by understanding the relevant laws and following them closely. Entrepreneurs need to be flexible and dynamic when they enter what is likely to be a rapidly changing legal landscape.
Even before the loosening of restrictions, Johns Hopkins researchers obtained regulatory approval to conduct limited psilocybin research because the university had established credibility with regulators to act safely and in accordance with the stringent requirements. After the 2018 federal changes, Johns Hopkins opened the Center for Psychedelic and Consciousness Research to expand this work, quickly raising more than $17 million from private donors. With hundreds of millions of dollars in venture-capital funding now flooding the space, Johns Hopkins University has leveraged this early advantage to become a research hub.
The loosening of restrictions is opening up opportunities for others, but even this space is becoming crowded. Accelerators like Y Combinator have accepted a small but growing number of psychedelic startups and mainstream biotech investors are entering the space as well. Nearly every company in the space is dedicating substantial resources to protecting their intellectual property and navigating FDA approval, both of which can be time-consuming and expensive barriers. Entrepreneurs entering the space today may struggle to compete with companies that have a head start.
2. Understand legal restrictions and the challenges they create.
The legal landscape can also hinder growth, and it’s important to be realistic about how to best operate within the confines of these laws. Ending prohibition is a tricky, slow process that can sometimes create contradictions that make it difficult to scale a new industry.
In cannabis, the differences between state laws and federal law have created a massive challenge. For example, most U.S. cannabis production happens in the so-called Emerald Triangle of Northern California, Oregon and Washington, but these states face massive legal headaches in terms of selling their crops beyond state lines. The result is plummeting prices in these states, where there is an oversupply, and persistent scarcity in other states that have legalized cannabis.
Similarly, federal prohibition means many banks and payment processors are hesitant to work with legal cannabis businesses, even if they’re in full compliance with their home state’s laws. This means many cannabis businesses have to deal with cash, cannot accept credit card payments, and are unable to make use of payroll software platforms that would benefit their business.
“A lot of cannabis companies fail because they don’t follow the law,” Calkin said. “The laws can be complicated, and there are scammers out there trying to get people involved in illegal operations. Entrepreneurs need good advice from experts.”
Presumably, if the psilocybin industry grows, similar dynamics will emerge. Before putting a penny into anything related to psilocybin, get advice from someone who understands the legal landscape well. A clear understanding of the law allows entrepreneurs to seize opportunities, even while remaining cautious.
For example, Hermida is calling his store the first legal mushroom dispensary in the U.S. However, Chillum sells the amanita muscaria mushroom, which he says creates similar sensations for the user as magic mushrooms despite lacking the still-illegal psilocybin.
“Ultimately, if psilocybin is legal, if cannabis becomes legal in Florida, we will be excited to sell that. For now, we are working within the law and offering a product that gives people an experience that is not identical to psilocybin, but still very beneficial,” Hermida said.
Tip: Don’t let the legal gray area scare you away from psilocybin, but know the laws and follow them.
3. Build a team of experts.
Though the cannabis industry grew in large part because of risk-taking individuals who saw the future potential, that era has passed. According to Calkin, where there was once an open frontier, there is now a mature industry.
“Cannabis isn’t the Wild West anymore,” Calkin said. “The people and companies that are succeeding are building teams made up of experts who understand all sides of the business – they’re building relationships and partnerships.”
Companies that are succeeding in cannabis today are smart about their accounting and tax preparation, hiring and other core functions. Multistate operators are increasingly corporate and often vertically integrated, comprising sprawling operations that include cultivation, manufacturing, and retail elements across multiple legal markets.
4. Establish valuable partnerships.
Beyond business services, cannabis’s future lies in innovative partnerships, such as services that will help customers select strains or blends that will meet their specific needs or delivery boxes that expose customers to the best strains from all over the country.
Each of these requires coordination and relationships throughout the supply chain. In the case of delivery boxes, for example, entrepreneurs will need to work with multiple growers, master the logistics of shipping, and understand the laws regarding emerging interstate sales compacts.
Potential opportunities in psilocybin will likely require the same degree of coordination. Forward-thinking entrepreneurs should be building relationships now by attending conferences, connecting with medical professionals who are open to psilocybin’s potential, and getting up to speed on what the large pharmaceutical companies intend to do in the space.
Starting your journey to become a psilocybin entrepreneur
Though the future of the psilocybin industry hinges on changing laws and policies, entrepreneurs who are interested can get started now. By carefully tracking the legal landscape, identifying opportunities within that landscape, and building relationships within the industry, entrepreneurs can either find space for themselves today, or be ready to act if and when laws change.