Legal, Regulatory Aspects Psychedelics Companies Should Consider Before Going Public

In the past few months, many of the stocks that were the most actively traded on the Canadian Securities Exchange were shares of firms involved in the psychedelics industry. Firms operating in the psychedelics industry have also listed on the NEO Exchange and TSX Venture Exchange in Canada. Additionally, other firms in the sector are currently raising capital to help develop their businesses and are planning on “going public” in Canada.

A common misconception is that all these companies raising capital from the investment community and listing on stock exchanges are psychedelics companies. It should be noted that the firms in this sector aren’t a homogenous group. This is because the growth plans and business models of these companies differ significantly. The regulatory and legal frameworks also differ, depending on the market segments a company operates in and its jurisdiction of operations.

Firms in the psychedelics sector can be categorized as operating in one or a combination of the following market segments:

  1. Recreational usage/medical tourism: These companies are involved in recreational usage activities in jurisdictions where these activities are legal and medical tourism tasks such as micro dosing psilocybin are permitted.
  2. Treatment/clinic centers: These firms are involved in the treatment of various conditions, including addiction and mental illnesses. The activities are conducted in wellness centers or clinical settings.
  3. Wellness/nutraceutical products: These firms are involved in the formulation and development of various wellness or nutraceutical products using no-psychoactive components
  4. Pharmaceutical: These firms’ activities include clinical trials, development and research activities, and other related activities with both nonhallucinogenic and hallucinogenic compounds and their delivery systems.

We shall now look at an overview of the regulatory and legal requirements that are connected with the above market segments in Canada.

The scientific investigation of psychedelics has been documented to have begun more than a century ago in 1877. However, in the 1970s, psychedelics were declared illegal in most parts of the world, including Canada. This led to international policies being drawn up that were governed by three UN conventions;

  • The Trafficking Treaty (1988)
  • The Convention on Psychotropic Substances (1971)
  • The Single Convention on Narcotic Drugs (1961)

Countries that signed onto the conventions pledged to make their national drug laws consistent with the conventions’ provisions. The following are grounds under which the regulatory and legal landscape in Canada with regard to psychedelics could go against the mandates established in the UN conventions while still complying to the UN convention obligations:

  • Scientific and medical research purposes
  • Constitutional grounds
  • Human rights grounds

Furthermore, businesses operating internationally as well as in Canada are also affected by laws of general application, such as environmental laws, labor and employment laws, intellectual property laws, tax laws, and securities and corporate laws. Additionally, firms operating in the psychedelics industry should consider laws of specific application, such as the Controlled Drugs and Substances Act (1996, Canada). Therefore, a firm that’s operating in the psychedelics sector should consider compliance with multiple regulatory and law regimes, depending on the market segments in which it is operating.

One firm you should watch in the psychedelics space is Pure Extract Technologies Inc. The companny focuses on extracting different compounds from plants. The company also recently added a functional mushrooms vertical to its business.

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