On April 18, President Trump joined top health officials in the Oval Office to sign Expediting medical treatment for serious mental illnessAn executive order to expand research into ibogaine.
This signals the strongest federal support to date of psychedelic therapy as an alternative treatment for conditions such as PTSD and addiction.
While that shift has prompted a rally in psychedelics-focused biotech stocks, AdvisorShares managing director Dan Ahrens reminds Investing News Network (INN) readers that these names remain volatile, micro-cap bets whose fortunes hinge on the strength of binary clinical trial results and intellectual property.
The market responds positively
The EO was taken as a major validation signal for market watchers. Stock surged after announcement reports The President was preparing an EO that came out around April 16, and benefits increased in the following days after the official announcement.
Enveric Biosciences, which focuses on psychedelic-derived neuropsychiatric therapies, experienced an astonishing 100 percent gain in its stock price. Sales of Sciance Biomedical, a company that develops non-synthetic psilocybin-based psychedelic drugs, rose 111 percent.
Tracking companies actively managed funds in this sector, the AdvisorShares Psychedelics ETF (NYSEARCA:PSIL) gained 19.88 percent this week from its closing price on April 17. Ahrens, who manages PSIL, called the executive action “a watershed moment for psychedelic medicine,” citing a rare convergence of clinical progress, policy support, and urgent unmet mental health needs.
“I think this is a true reappraisal,” Ahrens said on a call with INN. “I’m almost surprised it wasn’t an even bigger step than that.”
Part of that confidence comes from how far the field has fallen. As a group, these stocks have “significantly underperformed” since 2022, leaving ample scope for upside even after the recent surge.
While markets reacted with enthusiasm, it is important to clarify the true capabilities of EO.
The order focuses on research and review to create a faster federal pathway for psychedelics into clinical development within the existing legal framework. It does not widely legalize psychedelics or decriminalize them.
It provides FDA review priority for psychedelic drugs that meet specific criteria, such as drugs with Breakthrough Therapy designation. Ibogaine treatment is given special attention for veterans suffering from PTSD.
Additionally, HHS is directed to commit US$50 million in funding to match state investments in psychedelic research programs in Texas, Arizona, New Jersey, Indiana, Missouri, New Hampshire, Massachusetts, and New Mexico.
Finally, DOJ, HHS, VA, and FDA have been asked to coordinate on labeling and scheduling issues so that approved treatments can move seamlessly through the system.
Practical implications and broader policy implications
This is an important policy change that improves the outlook for psychedelics companies. According to Ahrens, the practical effect is to shorten regulatory timelines for programs that are already in the pipeline, which can feed directly into M&A.
As psychedelic programs move closer to Phase 3 and final approval, they become ideal acquisition targets. “We now invest a little bit in Johnson & Johnson (NYSE:JNJ) and AbbVie (NYSE:ABBV), as both of them have very famously acquired psychedelics companies,” Ahrens said.
In other words, EO could also help define the next wave of pipeline deals for big pharma.
While the executive order formally focuses on ibogaine, Ahrens said investors are considering it as a “read-through” for the broader psychedelic field, particularly psilocybin, ketamine and MDMA.
This stance is supported by more recent steps from the administration Reclassify Cannabis The Attorney General calls for a hearing to consider the reclassification of all cannabis, as well as for licensed medical and state-approved dispensaries.
“Trulieve welcomes this decisive action to more closely align federal policy with current medical practice and state laws,” Kim Rivers, CEO of Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF), said in an emailed statement.
“Rescheduling medical marijuana to Schedule III opens the door to more robust research, provides a pathway to registration, and removes the punitive tax burden imposed by Section 280E of the tax code.”
“We believe the full impact of the rescheduling is substantially underestimated, with the certainty of rescheduling realizing substantial benefits as well,” said Frederico Gomes, director of life sciences institutional research at ATB Cormark Capital Markets.
Overall, these policy steps suggest an increasing openness toward alternative medicines when they are channeled through a medical, data-driven framework.
Limits and remaining investment risks
However, the effect of the order has its limits. “These psychedelics companies are real biotech companies, and they do business based on their intellectual property and real treatments,” Ahrens said. “We have the full support of the White House in a directive through an executive order to fast-track those things, and this is just a first step.”
Compared to cannabis, where issues of banking, listing and federal versus state law dominate, Ahrens pointed out that micro- and small-cap psychedelic stocks are pre-profit and extremely volatile, with their fate dependent on the results of clinical trials. As the FDA path is expedited, they may be as fast-tracked for failure as for approval.
Noting the potential for concentration, Ahrens recommends an actively managed psychedelics ETF as a vehicle to access the space. “Anytime you’re investing in microcap stocks, primarily biotech-related and psychedelic-related, it should only be a small portion of one’s portfolio, and they should understand the risks,” Ahrens warned.
PSIL is heavily weighted in its top five holdings, but it has more than 25 names, allowing some room to actively trade around volatility.
bottom line
The White House’s new executive order doesn’t magically make psychedelic drug development risk-free, but it does reshape the playing field, turning a typical, struggling corner of biotech into a policy-backed, high-upside, high-volatility bet on the future of mental health treatments.
Securities Disclosure: I, Megan Seiter, do not have any direct investment interest in any of the companies mentioned in this article.
Don’t forget to follow us @INN_Lifescience For real time news updates!
