Hi friends,

What do you know about psychedelics?

I first got interested in psychedelics a few years ago. I know what you’re thinking, but no, not for recreational purposes.

Everywhere I looked, someone was telling me about how psychedelics were increasingly being used to treat mental disorders.

I looked into the research and got excited. They had a lot of potential and seemed to be gaining momentum.

In Australia (where I live), the Therapeutic Goods Administration (TGA) had even authorised MDMA in the treatment of PTSD and psilocybin for use in treatment-resistant depression. And just this week, The American Journal of Psychiatry released a 132-page special issue dedicated to psychedelics and the APA included the psychedelics as one of their top 10 trends to watch in 2025.

We desperately need better treatments and here is a class of drugs promising profound improvements. I got excited. But I also had a lot of questions.

How much evidence is there behind these drugs? How do they work? How are they being regulated? How should we think about separating their medical use from their recreational use? 

I started researching. But I ended up getting incredibly frustrated.

You see, this industry is as controversial as it is exciting. People on all sides of the psychedelics debate have strong opinions and incentives. That makes it hard to find objective data. And I hate that. 

One week, I read an article from a pro-psychedelics organisation telling me how they are changing outcomes for treatment-resistant depression. The next week, I attended a talk from a well-respected mental health researcher who poked holes in that same research. 

Would someone just tell me the truth here?

I wanted to know what is actually going on and have an objective, high-level overview of the state of these drugs and their ability to treat mental disorders. 

I couldn’t find it, so I decided to make it. 

That’s the motivation behind this new series - a three-part discussion on the role of psychedelics in mental health, providing an objective introduction to psychedelics, the research behind them, the businesses creating them and the market in which they operate. 

By the end of this series, you’ll understand how these drugs work (at least at a basic level), what level of evidence exists, who the major players are, the regulatory stances of major agencies, the industry challenges and how to think about the role of psychedelics in mental health.

Pharmacology is far from my area of expertise or my core focus in these reports, but considering the potential for improvement in MH outcomes and the hype surrounding psychedelics, I feel we should at least have a basic understanding of what they are, how they work and what level of evidence exists.

Also, it’s just a fun topic to debate with friends and it’s always good to come to these dinner table debates armed with some cold hard facts!

To write this series, I’ve teamed up with Valentine Assal. Val is a Life Sciences Strategy Consultant based in Zurich who has spent the last few years deep-diving into the topic of psychedelics, the regulatory landscape and the businesses operating in the industry. She knows this space deeply and has been incredibly helpful in the research for this piece and in educating me on the market. 

Today, in Part I of this series, we’ll cover;

1. Psychedelics 101: what exactly are psychedelics?

2. The history of psychedelics

3. The current state of psychedelics. What do we know?

4. The major questions and challenges of the field

Let’s get into it.

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1. Psychedelics 101: what exactly are psychedelics?

Psychedelics are substances that produce changes in perception, mood and cognitive processes. If you take a psychedelic you might experience visual or auditory distortions, hypersensitivity, altered perception of time or even hallucinations.

You might also have mystical-type experiences. People often describe this as experiencing a sense of unity, a heightened sense of connection to others and the universe, or a dissolution of their ego.

Of course, sometimes these altered mood states and changes of perception lead to unpleasant experiences - some people have very distressing experiences including powerful negative emotions, confusion, paranoia, delusions, and dissociation.

There are many different types of psychedelics and it’s important we differentiate them. One way to do so is to split them into “Classic” and “Non-Classic” psychedelics.

Classic Psychedelics. These drugs work on serotonin 5-HT2A receptors in the brain and central nervous system. Drugs in this category include;

• Psilocybin (also commonly called magic mushrooms)

• LSD

• Ayahuasca

• DMT

• 5-Meo-DMT

• Mescaline

Non-classic psychedelics: Some compounds like MDMA and ketamine are not actually psychedelics. The effect profiles of these drugs overlap with those of the classic psychedelics but don’t interact as prominently, or at all, with serotonin 2A receptors.

They include drugs such as:

• MDMA

• Ketamine

• Ibogaine

• Salvia

Note: Within both of these categories, psychedelics can be naturally occurring (e.g., psilocybin), whilst some are synthetic (e.g., LSD).

Does that mean any “brain-altering” substances can be classified as psychedelics?

Nope.

Other drugs like alcohol, cocaine, heroin, tobacco, methamphetamine, etc. are not psychedelics. Remember, to be classified as a psychedelic, a substance has to produce changes in perception, mood and cognitive processes. They also typically have a mechanism of action that acts on serotonin (5-HT) receptors, especially the 5-HT2A receptor. 

You’ll recognise a lot of these drugs because they are often used for recreational purposes. In this series, we’re going to focus on their medical use cases, specifically their ability to treat mental disorders. In Section 4, we’ll give an overview of each of these compounds and their current status in treating such mental disorders. 

But before we do that, I want to explain more about how psychedelics work.

The trip

What is a “trip”?

If you know, you know. But if you don’t, it’s an experience of acute brain-altering. It’s when, under the influence of psychedelics, you experience things like visual distortions, hypersensitivity, increased feelings of connectedness, ego dissolution or altered sense of time and reality.

So far, the “trip” is a key part of psychedelics as a mental health treatment. To understand why, we need to understand how these substances are used to treat people with mental disorders.

What does psychedelic treatment look like in mental health?

When we use psychedelics to treat mental disorders, we don’t just give people a pill and tell them to wait for their depression to go away. 

In mental health, psychedelics are mostly used in combination with therapy, in treatments called psychedelic-assisted psychotherapy. This treatment combines preparatory therapy sessions, with dosing session(s) and integration therapy sessions.

• Preparatory therapy sessions: Clinicians build a therapeutic alliance with the patient, help them prepare for their trip and explore the nature of their struggles.

• Dosing session: The patient goes to a clinical setting and takes the psychedelic compound (usually orally). These settings usually have ambient music, couches, eye masks and other accessories to make the patient feel comfortable. Think more “cosy living room” than “hospital”. Patients are accompanied by clinicians for the duration of their dosing session (sometimes up to 8 hours) who can offer assistance or guidance.

• Integration therapy sessions: After their dosing session, patients go to more therapy sessions to help them process and make sense of their experiences. The goal is to ensure that any benefits they may have experienced during their session, continue into their daily lives

Of course, many variations of this treatment are being tested, but this is the typical structure.

One interesting thing to note is that the use of therapy in psychedelic treatments is a hot topic among researchers and treatment developers. A lot of folks are trying to disentangle the impact of the therapy part of the treatment versus the actual drug - but doing so turns out to be quite difficult, more on that later.

How do they work?

There’s a lot we still don’t understand about the mechanism of Psychedelics. However, current research suggests they work in mental health treatment in two main ways.

First, current research suggests they promote direct changes in neural connectivity. Psychedelics modulate neural circuits and promote neuroplasticity through their action on serotonin receptors, particularly the 5-HT2A receptors we mentioned earlier. This receptor activation leads to a temporary dissolution of rigid thought patterns - patterns that are often linked to disorders like depression, anxiety, and PTSD- by disrupting the brain's default mode network.

Secondly, they facilitate psychological insights in patients. When someone is under the influence of psychedelics, their altered state of consciousness (the trip) can allow them to access suppressed emotions, gain new perspectives on their lives or experience a sense of unity or interconnectedness. If engaging with a therapist, they may work through some of these topics, gaining deeper insight or having a shift of perception that allows them to better cope with their distress. If this psychological shift endures after their session, it can lead to behaviour change and as a result, an improvement in symptoms.

One way to think of psychedelics is more as a “catalyst” than as a “treatment” in isolation. It’s like opening the windows in a musty house to let fresh air in over a short period of time. Sometimes that “fresh air” helps people look outside the window and go beyond their usual loops of thought.

As Michael Pollan puts it:

The result is that it’s very hard to separate the drug itself from the rest of the treatment - the preparatory sessions, the setting and environment for the dosing session as well as the talk therapy provided around the dosing session (assuming talk therapy is provided).

While some researchers have been investigating if they can provide the benefits of psychedelics without the trip, they account for a minority of the overall research in this space.

2. The history of psychedelics

If you want to understand the regulatory and commercial landscape for psychedelics, you need to understand their history. So let’s do a quick recap of the history of psychedelics.

Psychedelics have been around for millennia. For thousands of years, indigenous communities around the world have used psychedelics as part of their spiritual and healing traditions. For example:

• Peyote (mescaline) has been used by indigenous groups in northern Mexico and the U.S. Southwest for thousands of years.

• Psilocybin mushrooms have been central to the Mazatec people’s medicinal practices.

• Ayahuasca, a psychoactive Amazonian brew, has played a role in ceremonies for centuries.

In the 1940s, the scientific community started to get interested in psychedelics. Albert Hofmann discovered LSD in 1943 and by the 1960s, over 1,000 scientific papers had been published exploring psychedelics for conditions like alcohol use disorder and neurosis. Also by this time, approximately 40,000 patients had received LSD therapy. So psychedelic-assisted therapy isn’t actually that new.

Around this time, psychedelics also started to get used increasingly for recreational purposes. Drugs like LSD and psilocybin became more available and were initially distributed among academics, writers, and creatives who sought to explore altered states of consciousness.

In the 1960s, the countercultural movement was gaining traction, marking a rejection of traditional societal norms and an embrace of experimental lifestyles. Recreational psychedelics were a natural fit for people embracing this movement. 

Then, in the 1970s, the US started their “War on Drugs”. They passed the Controlled Substances Act which listed many compounds (including psychedelics) as Schedule I drugs - defined as drugs with no currently accepted medical use and a high potential for abuse. It’s important to note that the scheduling of these drugs was not scientific evidence-based, but largely influenced by political will. The association of psychedelics with anti-war protests and the hippy movement didn’t help their case in the eyes of policymakers. 

This quickly put a halt to most psychedelic research.

The Modern Resurgence

After the 70s, we entered a psychedelic ice age. Little research was done and while some communities still took these drugs recreationally, there was very little interest from the medical community. 

Then, in the 1990s a resurgence began. 

Advances in neuroscience and brain imaging reignited interest in psychedelics. With these advances, we could now start to understand more about the effects of psychedelics and how they worked. We also started to understand more about many of the mental disorders we hoped psychedelics could treat. 

Cultural movements pushed decriminalisation or legalisation of many drugs and people started to experiment more with psychedelics for the purposes of medicine and mental health. Research expanded, supported by an increased flow of investment into the space. 

Today, institutions like Imperial College London and Berkeley are conducting groundbreaking studies, and companies like COMPASS Pathways and MindMed are developing treatments for conditions such as depression, PTSD, and substance use disorders. 

3. The current state of psychedelics

So let’s get to brass tacks. What do we know? What works and how is it being applied to treat mental disorders?

The first thing to note is that there is a difference between a psychedelic product being approved and the authorisation of a specific psychedelic therapy. If you’re a clinician/pharma person you know all this already, but if not, it’s helpful to have a quick explainer (because I didn’t fully understand it myself).

Approval: This means the drug itself (like psilocybin or MDMA) has been tested and approved for safe use in treating a specific condition (like depression or PTSD). It’s like saying, "This medicine is effective and safe to use." No psychedelic treatments are currently approved by the FDA, EMA or TGA, etc..

Authorisation. In some cases, regulators may authorise a specific product if they believe the benefits outweigh the known potential risks. For example, in Australia, the TGA has authorised the prescribing of MDMA for the treatment of post-traumatic stress disorder and psilocybin for treatment-resistant depression. This means psychiatrists can access and legally supply a specified ’unapproved’ medicine containing these substances to patients under their care for these specific uses. Essentially, whilst we wait for drug developers to complete clinical trial research to get products approved by payers and onto the market, some treatments can still be accessed where authorised.

The current exceptions to this are the esketamine nasal spray by Janssen (which is not trip-inducing) and the off-label use of intravenous ketamine.

Where are psychedelics being used for mental health today?

There are currently no approved treatments. Legal access to psychedelics for therapeutic applications therefore remains limited. However, a few countries are paving the way by authorising their use in specific circumstances.

Australia:

Since 2023, MDMA and psilocybin have been available to specific populations in Australia. It can be prescribed by authorised psychiatrists under the auspices of the Therapeutic Goods Administration (TGA). MDMA is allowed in the treatment of PTSD, and psilocybin for use in treatment-resistant depression. Treatment is expensive (approx. AUD 30k per treatment) and is not covered by insurance or Medicare (Australia’s public health insurance). 

Canada:

In Canada, Health Canada has granted some exemptions for the use of psilocybin in palliative care settings. Physicians in Canada may request access to drugs such as psilocybin, LSD, or MDMA that have not been approved for medical use through Canada’s Special Access Program.

USA:

In the US, Oregon launched Psilocybin Centers, where Licensed psilocybin service centres provide preparation, administration, and integration sessions under the guidance of licensed facilitators. There is no requirement for a medical or psychiatric diagnosis to receive services. Colorado is set to follow in 2025.

Switzerland:

In Switzerland, psychedelic-assisted therapy with substances like LSD, MDMA and psilocybin has been available for 10 years through compassionate use exemptions. 2000 - 3000 treatments have been delivered so far. Special authorisations are required from the Swiss Federal Office of Public Health (Blossom Analysis).

The role of psychedelic retreats

Another way people are accessing psychedelics is through psychedelic retreats. In countries where psychedelics are legal (e.g. the Netherlands, Jamaica, Mexico, etc.) people who want to access psychedelic therapies (or who just want to explore their consciousness) can sign up to attend retreats, without requiring a diagnosis.

This seems to be becoming increasingly popular (I personally know quite a lot of people who’ve tried psychedelics through this avenue). Some retreat centres are highly qualified, but due to the increasing interest, some centres have inadequate screening, lack of professional supervision, unregulated use, abuse of power and cultural appropriation (Vice, 1Drea).

What is the current state of research?

OK, so we know understand the current state of psychedelics from a regulatory and market availability perspective.

But what about what’s coming next? What is the state of psychedelic research and what can it tell us about what is coming around the corner for this class of drugs and their ability to treat mental disorders?

Leading universities (Imperial College, Berkeley, etc.) and psychedelic treatment developers (COMPASS, MindMed, etc.) have been heavily investigating the use of psychedelics for psychiatric indications. 

To understand the state of this field, we need to break down each psychiatric indication and understand the current status of the drugs being developed to treat them. The best way to do this is to look at the drug candidates that have reached Phase 2 or Phase 3 clinical trials.

This image shows that several drug candidates are in Phase 2 and Phase 3 trials for the treatment of PTSD, treatment-resistant depression, generalised anxiety disorder and major depressive disorder.

If you want to see a full list of psychiatric indications, we’ve created an infographic for you here.

Whilst no psychedelic treatment has yet been approved as a legal medicine by regulatory agencies, this ongoing research and clinical trials hope to pave the way for potential future approvals.

At a high level, research seems promising, but many findings so far are based on small-scale studies with considerable design limitations. It’s one of the major critiques of the field. For example, here’s data from one open-label study (patients know they are prescribed the substance, there’s no blinding) with a small sample size.

• 24 participants completed two doses of psilocybin with supportive psychotherapy in an open-label study and were followed through 12 months following their second dose

• Treatment response (⩾50% reduction in GRID-HAMD score from baseline) and remission were 75% and 58%, respectively, at 12 months (Journal of Psychopharmacology)

However, many larger, well-controlled trials have been completed recently or are currently underway. The hope is that these will bring more robust evidence to the field

For example, COMPASS released this study on Single-Dose Psilocybin for a Treatment-Resistant Episode of Major Depression (NEJM). The Phase 2 double-blind trial for COMP360, gave adults with treatment-resistant depression a single dose of synthetic psilocybin at a dose of 25 mg, 10 mg, or 1 mg (control), along with psychological support. The results were positive. 29% of participants in the 25mg group were in remission by week 3 vs. 8% in the 1 mg group

Phase 3 trials for this compound from COMPASS are now underway.

Lykos Therapeutics (previously MAPS PBC) has also released research on the use of MDMA to treat adults with PTSD. Results showed that: 67% of participants who received three MDMA-assisted therapy sessions no longer qualified for a PTSD diagnosis and 88% experienced a clinically meaningful reduction in symptoms, versus 32% and 62% in the placebo group respectively (MAPS)

However, it is important to note that the FDA decided against approving Lyko’s Therapeutics product in August 2024 for many reasons you can find in the dispatch by Psychedelic Alpha and details of the June 4th Advisory Committee review by Psychedelic Alpha.

4. The major questions and challenges in the field.

We know this field has promise. But we also know it’s still early days. So what are the questions and challenges people are focused on solving?

1. Understanding more about how psychedelics work. Despite advancements in how much we understand about the brain and how psychedelics work, there is still a huge amount of unknown. We’ll need a lot more research as well as advancements in research techniques and technology to support developing this understanding.

2. Overcoming research challenges. We need a lot more research but some of the characteristics of psychedelics pose real challenges for developing robust studies. For example, blinding is hard to achieve in these studies - both participants and interviewer can often identify if they are on the drug which can lead to placebo and nocebo effects. Uncertainty around the mechanism of action also makes research more difficult.

3. Ensuring consistency of treatment. Psychedelic treatments can consist of several sessions with clinicians over prolonged periods, often including multiple psychotherapy sessions. This large “human” component of the treatment introduces significant variability in the treatment. This is a challenge for research particularly for regulators. To get approval for treatments, companies will need to give regulators certainty over the consistency of treatment they can deliver. As we will discuss in the next chapter of this series, some companies are trying to get rid of this element by removing psychotherapy from the treatment altogether.    

4. Guaranteeing safety. Because of the nature of psychedelics, patients are often in vulnerable emotional and psychological states. Treatments must ensure patients are adequately protected which increases the complexity and cost. Some compounds also have addiction risks (e.g., ketamine). Treatments must ensure this risk is adequately managed - opioids are a good example of what happens when this goes wrong with powerful drugs.

5. Dealing with high expectancy. This one is tied challenges around research. Due to the high unmet need for treatments in mental health, there is a lot of excitement around this field. This likely makes the placebo effect higher and harder to measure and also introduces serious nocebo effects. When patients who have tried everything are told that there is a silver bullet treatment (which it is not!) and it doesn’t work for them, the consequences can lead to serious worsening of psychological symptoms.

If these drugs deliver on their potential, they have the opportunity to change how we treat mental disorders and ultimately, the lives of hundreds of millions of people.

My takeaway after writing this initial chapter is that their potential justifies our attention.

Yes, we need a lot more research and to hold this research to the highest of standards. But we don’t have the luxury of ignoring an innovation with this much potential for improved outcomes. 

The Editor’s Note from the AJP’s special issue on Psychedelics accurately summarises the state of the field.

That’s all for this week. Many thanks to Val for all her work on this piece and to Sebastian Rositano for helping me understand more about how psychedelics work.

In Part II of this series, we’re going to learn about the commercial landscape of psychedelics who are the major players, where investment is going and what are the major trends in the market. 

Keep fighting the good fight!

Steve

Founder of The Hemingway Group

P.S. Feel free to connect with me on LinkedIn

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