Science, Not Startups: To Thrive in the Long Term, The Psychedelics Industry Needs Less Hype and More Research
As enterprising business school students, we’re often trying to spot the major trends that will shape our lives, so we can get in on the action — whether as investors, operators, or even as founders. Here at Stanford, I’ve spent the past several months researching one particular trend: psychedelics. My conclusion is a surprisingly un-business school one: while psychedelic medicine has shown some very promising early results, what the industry needs most right now isn’t more startups and VC dollars. It needs more basic research, more clinical trials, and more funding from private donors and philanthropists, because federal funding cannot be used for these still-illegal substances.
In short: psychedelic medicine needs more science — not more startups.
This journey for me started with my exploration into the cannabis industry here at the GSB, which included a Stanford-funded research trip to LA with my Startup Garage team to meet with investors at one of the top VC funds in cannabis. This VC surprised us by urging us to see cannabis as simply the first wave — the next big opportunity, they said, was psychedelics.
And as I looked into it further, I realized it’s not just VCs who are interested in the space: psychedelics have become a hot topic in the media and pop culture. Maybe you’ve seen the new Netflix show “The Goop Lab,” in which Gwyneth Paltrow sends 4 of her staffers to a psychedelic mushroom retreat in Jamaica. Or perhaps you’ve heard of the Michael Pollan book, “How To Change Your Mind,” which was a #1 New York Times best-seller. Maybe you have a friend who’s into psychedelics, or perhaps you even have some direct experience with them yourself. Wherever you may fall on the spectrum of curiosity on this particular topic, one thing is certain: psychedelics are part of the national conversation (again).
So why are these substances getting so much attention right now? A big reason is that a number of studies have been done in the last few years which research the use of psychedelics as a treatment for various conditions, such as MDMA for PTSD, psilocybin for depression (which the FDA recently granted Breakthrough Therapy designation), and other psychedelics (such as ibogaine) for helping curb addiction to substances such as alcohol and even opioids.
To be completely honest, I came into this exploration process with a strong personal bias in favor of psychedelics. That, coupled with the intriguing things I was hearing from investors and seeing in the media, piqued my curiosity to further investigate the space. I took the brand-new Psychedelic Medicine class at Stanford Medical School to better understand the science of these substances. I designed my own 390 independent research project to investigate the industry from a business perspective. And I spoke with users of these substances (confidentially, of course), along with industry experts, including doctors, therapists, clinical researchers, substance abuse counselors working with youth in public schools, grant-making institutions who fund research in this space, non-profits, for-profit healthcare companies in the space, and even a few small business owners who are quietly operating psychedelic retreats in countries where the use of these substances is not federally prohibited.
And my takeaway from all of this is that while the early results of these studies are promising, significantly more research is needed. The sample sizes for each clinical trial have been quite small, and until we’ve studied these substances more thoroughly, it is premature — and even potentially harmful — for the private sector to rush in.
You may have seen the recent WSJ article about the psychedelic medicine company that just IPO’ed. Instead of feeling excited about this, I feel a sense of dread. If the media and VC dollars are ahead of the actual science, we’re at risk of misunderstanding or even misusing these powerful substances, which could get them permanently banned, as they were for decades here in the United States. A few bad headlines, a few missteps, a few “bad trips,” and we could enter yet another long research winter on these important compounds — which ultimately only hurts the people who truly could benefit from their responsible use.
So if you’re looking for a way to get involved in the industry, the best thing you can do from a business standpoint isn’t to start a psychedelics company, or to invest in one. The way to win in the long term is to help fund clinical trials, like the ones happening in our own backyard here at Stanford Medical School. The more research we have, the more likely we are to influence federal policy for these substances, and ultimately, the better care we can deliver to patients.
Strategy Beyond Markets class taught us how important non-market factors are for all businesses, but especially those in heavily-regulated industries. Well, take the complex healthcare system and add in Schedule 1 drugs, and you have a regulatory morass. And the only way through it is clear, compelling — and above all — widely-tested research.
Somewhat paradoxically, it’s because I believe so strongly in the potential benefit of these substances that I want to see their development done right — and for now, that means science, not startups.
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In the spirit of communicating about psychedelics with more facts and less hype, I’ve put together a list of the questions I received most often from our community during my months of research. While this list is by no means comprehensive, I hope it offers you a starting point for developing an informed perspective on these powerful substances.
What, exactly, are psychedelics? The term has evolved over time, but broadly speaking, “psychedelics” refers to substances which alter perception and consciousness, such as psilocybin (often called “magic mushrooms”), LSD (“acid”), MDMA (“molly” and used as the basis for “Ecstasy”), ayahuasca, DMT, and ketamine (which is primarily used as a type of anesthesia, but has recently been studied for use as an antidepressant).
Are they safe?
No drug is without risks, and psychedelics are highly potent substances which under no circumstances should be taken without careful research and safety measures in place, particularly with respect to dose, set, and setting. From a dependence potential and toxicity standpoint, a number of psychedelics rank as safer than many substances people consume on a weekly if not daily basis, such as alcohol, caffeine, nicotine, and even cannabis. (This graph was created using data from the Gable RS study.)
Are they legal?
In a word: no. These substances are NOT federally legal. However, psilocybin has been decriminalized in Oakland, Denver, and most recently, in Santa Cruz. Ketamine clinics also operate in some states (such as CA, CO, WA, and NY), but that is something of a legal gray area, as these clinics provide ketamine for off-label use (the clinics provide it as an antidepressant, not anesthesia — the legally-approved use for ketamine).
Who uses these substances?
Steve Jobs, famously. Elon Musk. Writers like Aldous Huxley, Ken Kesey, Jack Kerouac and Allen Ginsberg. Musicians like the Beatles, Jim Morrison, and The Weeknd. Bill Gates. Susan Sarandon, GSBers like…just kidding, that all stays confidential. But just know that if this is something that’s part of your life, you are hardly alone, especially here in this community.
If I were to consume, how would I do it responsibly?
To be 100%, unmistakably clear: consuming psychedelic substances is NOT federally legal in the United States, and it is not risk-free. We do NOT endorse criminal activity. That being said, if you’re considering consuming these substances (such as at a retreat center abroad), you should be aware of Trip Safe protocol. This site addresses the 3 most important factors of safe consumption: dose, set, and setting: https://tripsafe.org
How can I learn more?