The Legal Landscape for Psychedelic Investors - Truffle Report
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The Legal Landscape for Psychedelic Investors

The Legal Landscape for Psychedelic Investors

Psychedelic Money

Jeffrey Merk of Aird & Berlis Comments on Opportunities and Risks, and a Timeline for Legalization

As we continue to witness breakthrough developments in psychedelics worldwide, the booming industry is attracting investors to the psychedelic renaissance. While the early private sector players have strong growth potential, new investors should be careful of impulsive decisions and look at the underpinning factors that may affect their portfolios. 

“I don’t want to see investors jumping to conclusions,” says Jeffrey Merk, a lawyer with Aird & Berlis LLP who works with clients in the psychedelic industry. 

There have been a number of recent psychedelic reforms in Canadian and American jurisdictions, including Canada’s exemption for psilocybin use in end-of-life treatment, the federal government’s allowance for Numinus’ substance abuse treatment partnership with Together We Can, and the State of Oregon’s psilocybin therapy allowance in the US. Even New Jersey’s psilocybin bill has added to the discussion, inviting attention from the specialized and mainstream news media. The result is significant interest in psychedelic investments in the biotech, pharmaceutical, and natural health product sectors. 

However, experts say that legal reforms will not be here overnight, and caution investors against hasty decisions. “While investors are seeing developments and are talking about how legalization is on the doorstep, I think it’s going to be a more measured approach by the Canadian federal government,” Merk says. Looking at developments in Vancouver, it appears that the first changes will be more evident on local levels. “But the federal government will be slow in this particular initiative,” Merk adds.

“At least investors should look into companies that are relying on widespread legalization in Canada in order to get a profitable return. If not, it will be disappointing if the laws take longer to change than they are anticipated,” Merk tells Truffle.

What Should Psychedelic Investors Keep In Mind?  

“Investors should be aware of their own tolerance, and at this moment, find a business model that matches their risk alert,” Merk says.

Most listed companies in the psychedelic sphere are binary in nature. This means investments will either be a big win or a straight zero, depending on factors like legalization, media attention, and research & development leading to actual marketable product outcomes. 

“We’re seeing more investments going into drug development, delivery system development or pharma type models. Investors are looking for things like potential legalization for the product to be sold, or for a larger pharmaceutical company to pursue the advocacy of those substances,” Merk says, explaining the mood of the experienced or institutional investors.

Another important consideration is the rise of adjacent products and services, non-psychedelic in nature, but which are functional because of the interest level. For instance, DELIC Corp, a media company focusing on psychedelic wellness, as well as destigmatizing psychedelics in the mainstream through events. The US company recently listed on the Canadian Securities Exchange.

Psychedelic companies have been clear about their binary status in the market. If a company is already generating revenue, getting media attention, and develops a remarkable product, it will continue to grow. However, investors need to identify their expectations from the booming market.

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“I think it’s not the companies so much. Instead, it’s the investors who need to identify themselves. They need to know what they’re looking for. They need to understand the risk tolerance, and not give in to driven or high-passion types of news,” Merk shares.

Managing Investor Expectations on Psychedelic Legalization

“If I am gazing in my crystal ball, I would say maybe two years on the shortest end. More likely, it will 4-5 years before we see legalization in Canada,” Merk says.

Talking about the current exemptions granted under section 56(1) by Health Canada as a short term solution, Merks says, “A Section 56 exemption is going to be very narrow and very specific.  Whether it’s decriminalization that Vancouver is looking at, or what Therapsil is doing. It’s not the kind of process that allows for easy repetition. It takes a lot of work.” 

Looking at the bigger picture, de-scheduling drugs from the Controlled Drugs and Substance Act is another possible way to legalize controlled substances, and presents a more systematic approach to redesigning the legal framework. However, this requires rigorous lobbying by bureaucrats from multiple jurisdictions and provinces.

“[The legalization process] is moving slowly and carefully to continue to push the scope of Section 56 exemptions, and eventually, it will include federal government to keep regulated psychedelics accessible for medicinal purposes,” Merk comments on the rising movement in Vancouver both in politics and research, adding, “These are baby steps towards broader legalization of substances.”

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