Despite Psychedelic Industry Buzz, Some Have Crashed Already

Some analysts have called the industry's business model problematic.

Companies crashing and burning is a common sight in any nascent industry, but even more so in an industry like psychedelics, which is built around federally illegal substances and working on developing novel brain chemistry drugs, all while chasing the promise of billions of dollars at the end of a very long, very dark and bumpy tunnel.

More companies are discovering the reality: The psychedelics business is not a business for the faint of heart.

There are few psychedelic companies showing any revenue. In fact, most of them are millions of dollars in debt. The crash-and-burn scenario seems to be just around the corner for most of them. And they know it, even as they go full-steam ahead with expensive research and development.

The psychedelics industry is full of organizational dangers and money pits. Check out the 14-page listing of risks and uncertainties published in MindSet Pharma’s (OTC: MSSTF) management discussion and analysis filing.

“The psychedelic industry and market are relatively new and this industry may not succeed in the long term,” the analysis states. “In addition, there is no assurance that the industry and market will continue to exist and grow as currently estimated or anticipated or function and evolve in the manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the psychedelic industry and market could have a material adverse effect on the company’s business, financial conditions and results of operations.

“There is no assurance that the company’s future cash flow, if any, will be adequate to satisfy its ongoing operating expenses and capital requirements.”

In other words, failure is definitely an option for most psychedelics companies.

But somehow, even with all this imbalance between vaguely possible success and soul-killing failure, there are only a few companies that have  actually thrown in the towel so far.

Take Vancouver-based Mindcure Health Inc. as one example.

In February 2022, the board of directors announced the formation of a special committee to do a strategic review of the company’s strategic direction, operations, market valuation, and capital structure.

According to a news release about the process, the review was to consider appropriate alternatives for the company, which could include one or more of the following:

  • Continuation as a stand-alone public company.
  • Strategic investor investment.
  • Acquisition by or a merger with an industry partner that may involve all or part of the business or assets.
  • Any other strategic alternatives that may be identified during the review.

The company said the review because the result of the “current state of capital markets and the evolving landscape for our industry” and that it intended to continue to pursue its core strategic objectives, including the development and launch of iStrymtm, its digital therapeutic software application. (The company spent $2.5 million on development costs for iStrymtm.)

Then Mindcure halted operations in March, citing that strategic review. It announced in a material change report that it “determined that the additional capital required to execute the company’s business plan is unlikely to be found under the current and foreseeable market conditions,” and that “none of the strategic alternatives available to the company necessitated ongoing developmental expenditures.”

A workforce reduction was announced, which included the ousting of Kelsey Ramsden, who had been president and CEO of Mindcure since December 2020.

Mindcure had been in business since March 2020 and seemed like a viable operation as recently as October 2022, when it announced financial results of up to $25 million in assets. Then in November, it announced that it was shutting down to eventually begin operations as part of LNG Energy, which is a private company focused on the acquisition of natural gas production and exploration assets in Latin America.

Mindcure will change its name to LNG Energy Group or “such other mutually determined name,” according to a news release.

Mindcure’s downfall indicates just the start of the predicted shakeout of the industry.

There are surviving psychedelics companies, to be sure. Cybin Inc. and Filament Health Corp. both had banner years. Atai Life Sciences also had a good 2022, even as it admitted to significant losses and negative cash flows from its operations, with an accumulated deficit since 2018 of $465 million as of September 2022.

Coming in as questionable survivors are Core One Labs, which is “actively working to investigate investment and potential takeover opportunities by strategic psychedelics or pharmaceutical companies,” and Mydecine Innovations Group, which just fired its auditors (which could be a clear signal of accounting problems) and sold their subsidiary, Mindleap, for $2.7 million in a “significant step towards refocusing the company’s resources.”

It’s all simply standard operating procedure for the psychedelics world.

According to an article in the New York Times, analysts say the business model for psychedelics is deeply problematic. Most psychedelic therapies are based on just a handful of sessions, a potential obstacle to big profits.

By contrast, many of the most lucrative drugs on the market — such as those that treat diabetes, hypertension, or kidney failure — are taken over the course of a lifetime.

Roiling around in a sea of questionable financing and operational issues are other psychedelics companies facing the ultimate crash-and-burn queries: Who’s next? When? What caused it?

And finally, aren’t these just growing pains for a nascent industry on the verge of breaking out?

Dave Hodes

David Hodes is a business journalist based in the Washington D.C. metropolitan area. He has contributed feature articles to several cannabis and psychedelics publications, as well as general business/lifestyle publications, on a variety of topics. Hodes was selected as 2018 Journalist of the Year by Americans for Safe Access. He is a member of the National Press Club, and the deputy booking agent for the National Press Club Headliners Committee.

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