A new era of advanced medical therapies involving the controlled use of psychedelic drugs is underway. Breakthrough clinical research, accompanied by regulatory changes around the world, is enabling the development and delivery of new psychedelic therapies for a range of mental health conditions, such as PTSD and substance addiction. These developments not only represent an opportunity for patients, they also represent an opportunity for investors. Venture capital investment into psychedelic therapeutics has surged from a little over US$12 million in 2017 to over US$360 million in 2021.

In this insight, we explore the most promising psychedelic substances, their potential therapeutic uses, and how they are currently regulated in Australia and around the world. We also look at the race to invest in this exciting new market.

Interest in the therapeutic benefits of psychedelics is exploding

Psychedelic plants and fungi have been used in traditional medicine for millennia. However, most psychedelic drugs remain illegal around the world, with very few exceptions.

Despite legal and regulatory obstacles, there have been significant advances in the understanding of the therapeutic benefits of psychedelics. For example, in 2017, the US Federal Drugs Administration (FDA) designated two psychedelics, psilocybin and MDMA, as ‘breakthrough therapies.’ Clinical studies into the therapeutic use of psychedelic drugs for treating a variety of mental health issues are growing exponentially.

And this has caught the eye of forward-thinking investors.

What exactly are we talking about here? Psychedelics and their potential therapeutic uses.

Psychedelics, also known as hallucinogens, are a class of psychoactive substances that alter perception and mood and change cognitive processes.[1] Many can be extracted from natural sources and others can be made synthetically in laboratories.

New psychedelic-assisted psychotherapies have the potential to provide treatment for mental health disorders, including post-traumatic stress disorder (PTSD), obsessive-compulsive disorder (OCD), depression, anxiety, addiction, and anorexia nervosa.

The psychedelic substances with the most promise that are currently being studied for their therapeutic benefits include:

Click here for more details about these substances.

The legal hurdles for further psychedelic therapeutic research and development

After the backlash against the use of psychedelic substances in the mid-twentieth century, the regulation of psychedelic drugs was tightened worldwide following the signing of the United Nations 1971 Convention on Psychotropic Substances.[2] This Convention has been ratified and implemented by 183 states, including the US, UK, Canada, and Australia.

In Australia, psychedelic substances are regulated under the Poisons Standard 2019 made under paragraph 52D(2)(b) of the Therapeutic Goods Act 1989 (Cth). Click here for more details on how these substances are regulated around the world, including in Australia, the United States, the United Kingdom, Canada, and Germany.

Research into the therapeutic uses of psychedelics is exploding (and it’s only just begun)

Medical research into psychedelic compounds and their potential therapeutic benefits ground to a halt following the United Nations 1971 Convention on Psychotropic Substances and its domestic implementation. However, since the 1990s, interest in the potential medical uses of psychedelics has grown exponentially, leading to a re-acceleration of academic and clinical research.[3]

Source: Petranker R, Anderson T, Farb N, ‘Psychedelic Research and the Need for Transparency: Polishing Alice’s Looking Glass’, Frontiers in Psychology, 10 July 2020

In particular, studies and clinical trials relating to the use of ketamine, which is less restrictively regulated than other psychedelics, has increased significantly over the past 50 years. 615 studies and trials have been completed worldwide with another 300+ trials currently recruiting or about to recruit participants.[4]

Since 2014, ‘Right to Try’ laws have been introduced in the US that allow physicians to administer psychedelics to terminally ill patients. This was followed by the US FDA designating psilocybin and MDMA as ‘breakthrough therapies’ in 2017 and marked the resumption of clinical research into the therapeutic use of psychedelics in the US and worldwide.[5]

In Australia, support for future psychedelics research was flagged by the Federal Government in 2021 with the launch of a $15m grant under the Medical Research Future Fund to target innovative therapies for people suffering mental illness, including anxiety disorders, depression, and substance abuse disorders. This grant is intended to fund a series of clinical trials to evaluate new psychedelic therapeutics such as ketamine, psilocybin, and MDMA, administered in parallel with psychological or psychiatric care.[6]

Several clinical trials have commenced since that time:

  • St Vincent’s Hospital Melbourne commenced a psilocybin-palliative care trial in January 2020.[7]
  • The Turner Institute for Brain and Mental Health established its first clinical psychedelic lab in 2020 with the hope of establishing the field of clinical psychedelics in Australia. The Institute, in partnership with Incannex Healthcare, implemented research of psilocybin-assisted psychotherapy for generalised anxiety disorder at Monash University’s BrainPark.[8]
  • Swinburne University is currently recruiting for a study on psilocybin-assisted psychotherapy for treatment-resistant depression.
  • Macquarie University is expected to commence a clinical trial with Woke Pharmaceuticals in 2023 using a novel low-dose formulation of synthetic psilocybin.[9]
  • Austin Health is running a study into the effects of psilocybin and assisted physiotherapy on functional neurological disorder.[10]
  • Edith Cowan University​ has initiated an Australian clinical trial of MDMA-assisted psychotherapy for PTSD in collaboration with PRISM.[11]
  • New Zealand has also completed 3 clinical trials on ibogaine at the University of Otago in 2012, 2013, and 2015 and the University of Auckland is currently in phase 1 of an LSD trial.[12]

With mental health continuing to be the most significant health issue encountered day-to-day by general practices across Australia, this research provides both hope for patients and an opportunity for investors.

The race to invest in new psychedelic therapeutics and the production of psychedelics for medicinal purposes has started

Since the US FDA designated psilocybin and MDMA as ‘breakthrough therapies’, the private sector has started looking closer at the opportunities that psychedelic therapeutics represent. Venture capital deals in this micro-sector have grown significantly since 2017. In 2017, three psychedelic start-ups received a total of US$12.6 million in venture capital. Across 2018 and 2019 the amount of venture capital invested in psychedelic start-ups rose to approximately US$100 million. In 2020, that became US$346 million[14] and in 2021, US$368 million.[14]

While economic headwinds have slowed funding in R&D-intensive biotech start-ups,[15] interest in psychedelic therapeutics is still strong and is accompanied by calls for law reform across the world, including in Australia.


In 2016, the TGA amended the Poisons Schedule to include cannabis and tetrahydrocannabinols in Schedule 8 (Controlled Drugs that are potentially addictive). This re-scheduling enables doctors to prescribe certain forms of cannabis. A suite of subsequent reforms, most recently in March 2022, have provided greater clarity and certainty to patients, medical practitioners, sponsors, and manufacturers in respect of the use of medicinal cannabis. Cannabidiol (CBD), a derivative of the cannabis plant that does not contain the psychoactive tetrahydrocannabinol (THC), is now also more freely available for therapeutic use following inclusion of some cannabidiol preparations in Schedule 3 of the Poisons Standard (pharmacy only medicines).

Different medicinal cannabis products are now included in a number of schedules of the Poisons Standard:

  • low-dose CBD (at least 98% CBD concentration and 1% or less THC) is included in Schedule 3 (Pharmacist Only medicines) and is available for over-the-counter supply — that is, under pharmacist supervision without a prescription provided they are sold in packs with no more than 30 days’ supply (with a recommended daily dose of 150mg of CBD per day)
  • higher-dose CBD (2% or less THC or other non-CBD cannabinoids) is included in Schedule 4 (Prescription Only Medicines) and can only be supplied on prescription
  • high-dose therapeutic CBD and THC-dominant (up to 98% of either CBD or THC) is included in Schedule 8 (Controlled Drugs), which means it can only be supplied on prescription and is also subject to additional strict requirements relating to production, storage, supply, distribution, possession, and use.

All other cannabis products are included in Schedule 9 (Prohibited Substances) and are prohibited from supply.

Strict labelling and packaging requirements apply to medicinal cannabis products, and advertising to the public remains strictly prohibited.

Examples of products containing CBD and THC approved for therapeutic use include:

  • low-dose CBD to treat anxiety, insomnia and PTSD; and
  • products containing THC to treat epilepsy, chronic pain, multiple sclerosis, and chemotherapy-induced nausea and vomiting.

These changes have led to a rapid increase in the number of manufacturers and suppliers of medicinal cannabis products in Australia. There are now over 40 medicinal cannabis manufacturers and suppliers in Australia.


Interest in new therapies is now extending from cannabis into classical psychedelics:

  • In 2020, a psychedelic advocacy group, Mind Medicine Australia, submitted a request to the TGA for MDMA and psilocybin to be downgraded from a Schedule 9 Prohibited ubstance to a Schedule 8 Controlled Drug to enable their use in the treatment of a range of conditions such as PTSD, anxiety and emotional processing in adults with autism, anxiety disorders, and addiction (for MDMA) and depression, anxiety, anorexia nervosa, body-dysmorphic disorder, OCD, and cluster and migraine headaches (for psylocybin).[16] Downgrading these substances to Schedule 8 would mean that they could be prescribed by an authorised healthcare professional, albeit with restrictions on the manufacture, supply, distribution, possession and use to reduce abuse, misuse and physical or psychological dependence. This submission was denied in 2021.
  • In 2021, Little Green Pharma was granted a Schedule 9 licence from the WA Department of Health to supply psilocybin, which is currently being trialled in the treatment of mental illnesses such as PTSD and anxiety.
  • 2021 also saw the launch in Victoria of a world-first global research institute, The Psychae Institute, aimed at developing new pharmaceutical-grade psychedelic medicine to treat mental health disorders.

As the results of more research and clinical data are generated across the world, we expect more intense calls for the down regulation of psychedelics to permit study and use in clinical settings.

For example:

  • The US Health and Human Services Department announced in May 2022 that it ‘anticipates’ that regulators will approve MDMA and psilocybin within the next two years for designated breakthrough therapies for PTSD and depression, respectively, and that it is ‘exploring the prospect of establishing a federal task force to monitor’ the emerging psychedelic treatment ecosystem.
  • Also in May 2022, the CSIRO announced that it was granted a new licence by the Victorian Department of Health that continued to permit the ‘manufacture and sale or supply by wholesale of Schedule 8 and/or Schedule 9 poisons, other than heroin’ by the CSIRO and extended that licence to a range of other psychedelic substances. The licence permits collaboration with local medtech companies to improve existing psychedelic products and develop new ones.
  • In July, HIF announced it intends to become the first Australian health insurer to cover treatment with psychedelic substances such as ecstasy and psilocybin.

It is becoming increasingly clear that we are witnessing the dawn of a new age of psychedelic therapeutic research and the emergence of a new psychedelics-assisted mental healthcare market.