Josh Schneiderman and Christina LaBarge

While the term “psychedelic” may conjure up 1960s counterculture, psychedelic substances such as “magic mushrooms,” LSD, and others, are being evaluated for use in potential “breakthrough therapies” for depression and numerous medical issues. In particular, psilocybin, a psychedelic compound derived from psilocybin-producing mushrooms, has received renewed attention in the wake of the liberalizing regulations and social views pertaining to cannabis. While psilocybin-producing mushrooms are illegal to cultivate or possess for consumption or distribution in the United States, as the scientific community continues to explore the efficacy of psilocybin and other psychedelics for treatment-resistant depression, addiction, and end-of-life distress, it is very possible that psilocybin may follow a similar path as cannabis with respect to relaxed regulations in the near future.

Psilocybin is listed in Schedule I of the Controlled Substances Act, which means that it has been identified by the U.S. government as a drug with “a high potential for abuse,” “no currently accepted medical use in treatment in the United States,” and “a lack of accepted safety for the use of the drug … under medical supervision.” However, psilocybin can be used for scientific research “under tightly-controlled conditions” requiring FDA approval, approvals from institutions that govern clinical trials and scientific research, and a special license from the DEA to use a Schedule I substance. Researchers hope to prove through clinical trials that psilocybin and other psychedelics have legitimate medical uses and can be safely administered under medical supervision, with the goal that the FDA will reclassify psilocybin from a Schedule I drug to a Schedule IV drug, similar to prescription sleeping pills.

Indigenous peoples across the world have turned to psilocybin-producing mushrooms for medicinal and ceremonial purposes for centuries, if not longer. In the 1950s, American psychiatrists and scientists began investigating psilocybin and other psychedelics for treating conditions like alcohol and tobacco addiction. However, after psychedelics “got out of the lab,” and began to be used recreationally, a surge of popularity among youth counterculture and celebrities in the early 1960s led to an equally large counter-reaction to the real and perceived dangers of the unregulated use of psychedelics. In 1966, the U.S. government banned possession of psychedelics and shut down almost all of the research programs taking place in universities and hospitals across the country.

Privately-funded scientific research into medical uses for psychedelics began anew in the 1990s after the FDA indicated research protocols for psychedelic studies would be treated like any other scientific study. During the 2000s, according to small preliminary trials at Johns Hopkins, UCLA, and NYU, psilocybin treatment was reported to have significant potential to treat depression, nicotine and alcohol addiction, and help terminal cancer patients deal with “existential distress” at the approach of death. These studies led to a wave of increased funding and larger-scale studies over the past decade.

In 2016, according to sister studies by Johns Hopkins and NYU, 80 percent of cancer patients showed “clinically significant reductions in standard measures of anxiety and depression” for at least six months after their psilocybin treatment session. In 2018 and 2019, the FDA designated two different psilocybin therapies for depression currently in clinical trials as “breakthrough therapies,” which accelerates the development and review process, and means that the drug may be an “enormous improvement over already available therapy.” This designation was granted to Usona Institute for its trials using psilocybin to treat patients with MDD, or major depressive disorder, and to COMPASS Pathways, for its trials using psilocybin to treat severe treatment-resistant depression. Both organizations have Phase 2 trials underway.

There is no government funding for pyschedelics research, so funding for these studies comes from private sector investors, wealthy individuals, and nonprofit organizations such as the Multidisciplinary Association for Psychedelic Studies and the Heffter Research Institute. Venture capital groups are beginning to invest in psychedelic treatments, and a company called Mind Medicine Inc., which is undertaking clinical trials for psychedelic-based drugs, went public in March 2020 on the NEO Exchange in Canada.

Many obstacles still lie ahead for proponents of psychedelic treatments. Phase 3 trials, which involve multiple sites and hundreds of volunteers, cost tens of millions of dollars. Big pharmaceutical companies may be disinclined to invest in psychedelics research because a patient may require only one to a few treatments, and there are few intellectual property opportunities. In addition, public acceptance of psychedelic treatments may depend on the success of these trials and a better understanding of the risks and rewards of such treatments.

Psilocybin research is a dynamic and evolving industry, and Phase 3 trials may prove that psilocybin treatment will be a breakthrough therapy for people suffering from severe depression and addiction. Cannabis regulations were first relaxed to allow it to be used for medical purposes; for example, California legalized medical marijuana in 1996. As medical marijuana became more widely used in California and other states across the country, social views gradually changed, and some states began to legalize adult use. Many speculative investors expect psilocybin legalization to follow a similar trajectory, are beginning to explore ways to invest in psilocybin research and are reaching out to lawyers to understand the legal landscape. It may be only a matter of time before psilocybin is approved for supervised medical use by the public and taken off the Schedule I Controlled Substances list in the United States.

Under the federal Controlled Substances Act it continues to be a criminal offense – punishable by forfeiture, fines, and imprisonment – to manufacture, distribute, dispense, or possess psilocybin, even where state law authorizes its use. Whatever the federal government’s current position on enforcement of federal law, that position does not change the law itself, or negate the possibility

About the Authors

Christina LaBarge, associate in Snell & Wilmer’s Los Angeles office, focuses her practice in real estate, and corporate and securities. She assists clients with mixed-use retail and commercial leasing, land purchase and sale transactions, and title and survey issues. Christina also advises clients on a variety of general corporate matters, including mergers and acquisitions, private placements, securities offerings and securities law compliance, entity formation, corporate governance and general contract negotiations.