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Saturday, October 1, 2022

The Canadian Capital Market Is Psyched: An Update On The Growing Wave In The Psychedelics Industry – Finance and Banking


Psychedelics have experienced a positive revival in recent
years, having emerged as a potential tool for treating certain
mental health illnesses, pain disorders, and neurological
disorders. Research has highlighted potential benefits of
psychedelics.1 Unsurprisingly therefore, companies have
been entering the space at a dizzying pace, seizing the market
opportunity to raise money from eager investors and go public. The
Canadian Securities Exchange (the “CSE“)
has been busy, hosting the majority of the new listings.

Regulatory Overview

Psychedelics are classified as “controlled substances”
under the Controlled Drugs and Substances Act
(“CDSA“). Under the CDSA, controlled
substances are separated into schedules based on a number of
factors, with Schedule I representing the substances that have been
determined by the federal government to carry the highest potential
for abuse. Most psychedelics are characterized as Schedule III
substances (for example, LSD, psilocybin, psilocin, mescaline and
DMT), with the exception of Ketamine and MDMA, which are Schedule I
substances. Although the CDSA prohibits the possession and use of
controlled substances including psychedelics, exemptions may be
granted by the Minister of Health (the
Minister“) for a medical or scientific
purpose or where it would otherwise be in the public interest under
Section 56 of the CDSA (“Section 56
“), or for clinical or research purposes
under the Food and Drug Regulations (the
Regulations“) 2 and
Narcotic Control Regulations. 3

For additional background information on the psychedelic space
and the relevant regulatory regime under the CDSA, please see our
previous bulletin: Psychedelics and Canada’s
Regulatory Landscape

Psychedelics in Capital Markets

Since the beginning of 2020, over 20 psychedelics companies have
listed on the CSE, TSX Venture Exchange
(“TSX-V“) and the NEO Exchange
(“NEO“). Over two-thirds of these
newly-listed companies became publically traded by way of a
reverse-takeover. In addition to these new listings, several other
public companies have entered the psychedelics space by acquiring
existing psychedelics companies or by expanding their respective
businesses to include psychedelics.

The majority of these public companies focus on the research,
development and commercialization of psychedelics for medical
purposes. Although less common, some of these newly-listed
companies operate therapeutic clinics, offering
psychedelic-assisted therapy to treat an array of mental illnesses.
At least three of these companies also produce and sell
“functional mushroom” products such as mushroom-infused
coffee, tea, skin creams, and similar consumer products. Functional
mushrooms are fundamentally different from psychedelics –
specifically, they do not contain psilocybin or other ingredients
classified as controlled substances in Canada or the United States.
They are often marketed for use in helping with stress,
inflammation, weight loss, and similar goals, rather than for the
treatment of physical and mental health disorders. It is helpful to
understand the distinction.

Of the psychedelics companies to ride the wave and go public in
Canada since the start of 2020, at least two have obtained Section
56 Exemptions for the use of psilocybin for scientific purposes. At
least three others have either applied for or announced plans to
apply for a Section 56 Exemption. Notably, some companies that are
listed on a Canadian stock exchange do not operate in Canada so may
not have a need for a Section 56 Exemption.

Regulatory Update

Special Access Program

A recent proposal by Health Canada to amend the Regulations with
respect to the Special Access Program
(“SAP“) may open another route through
which patients may access drugs, including psychedelics, which are
otherwise unavailable in Canada. Under the SAP, pursuant to the
Regulations, the Minister may issue a letter authorizing the sale
of otherwise unavailable drugs to a Practitioner who has submitted
a request for same. “Practitioner” is defined under the
Regulations as a person that is entitled to treat patients with
prescription drugs and is practicing in their province.4
Typically, this would include medical doctors among others.

The proposed amendments would repeal certain provisions of the
SAP that currently prevent access to psychedelics under the
program.5 In 2013, the federal government made changes
to the Regulations that prohibited the Minister from issuing
authorization letters under the SAP for “restricted
drugs,” which include LSD, psilocin and psilocybin, among
other psychedelics.6 Accordingly, the only method for a
patient to access such “restricted drugs” was through a
Section 56 Exemption. Health Canada’s proposed changes,
however, include removing the prohibition on “restricted
drugs.” If the proposal is successful, Practitioners in Canada
would have an additional avenue through which they could obtain
psilocybin or psilocin on behalf of patients with serious or
life-threatening conditions, without the need for an available
clinical trial.

Section 56 Exemptions

On August 4, 2020, Patty Hajdu, the Minister of Health, granted
the first publicly known legal exemptions for psilocybin for
medical use7 to four terminally ill cancer patients,
allowing them to receive psilocybin therapy as part of their
end-of-life care.8 Following the grant of this initial
exemption, the Minister has granted a slew of other exemptions for
both clinical and research purposes, greatly expanding the use of
psilocybin in Canada. Accordingly therefore, a substantial
expansion of authorized activity in the space has taken place.

The four exemptions granted in August 2020 were clinical
exemptions, and have been followed by more than 20 additional
clinical exemptions.9 Notably, while most of the
clinical exemptions granted by the Minister are for palliative
care, at least one exemption was granted to a former cancer
patient, marking the first non-palliative exemption granted under
the CDSA.10 Therefore, while the clinical use of
psilocybin remains primarily limited to palliative care patients,
the scope of use is gradually expanding. Furthermore, a number of
healthcare practitioners – including psychologists,
psychiatrists, clinical counselors, social workers, general
practitioners and nurses – were granted exemptions to take
part in a ten-week psilocybin therapy training program run by
B.C.-based, non-profit TheraPsil.11 Through this
program, the participating healthcare workers will focus on how to
facilitate legal, psilocybin-assisted therapies, in part by
undergoing their own guided psilocybin experience in order to
better understand the process their own patients will go through.
In connection with the Section 56 Exemptions described, psychedelic
industry companies have sought to expand their ability to produce
psilocybin and other psychedelics for clinical and research
purposes through Health Canada’s licensing

Research is very important to the growing acceptance of the use
of psychedelics for a variety of medical purposes. In addition to
clinical exemptions, Health Canada has granted a number of
exemptions to institutions to conduct research on psilocybin
mushrooms. Multiple companies in Canada have recently made
announcements related to Section 56 Exemptions they have received
from Health Canada to conduct pre-clinical research. Notably, some
of these companies have recently announced advances achieved
through such research.

What Lies Ahead

Although there has been an increase in the number of both
psychedelics companies in the Canadian capital markets and Section
56 Exemptions granted by Health Canada, the psychedelics industry
in Canada remains highly regulated against the backdrop of a
capital markets regime that is complex. Companies seeking to
operate within the industry, raise funds and potentially have their
stock listed on a Canadian exchange will need to contend with
compliance obligations. Accordingly, having legal counsel that has
experience in the industry to help navigate regulatory complexities
is highly recommended. While the positive renaissance that the
psychedelics industry is currently experiencing appears to have
made the investing public more comfortable supporting its
participants’ financing efforts, especially compared to how
psychedelics were viewed in the past, applications for the use of
psychedelics that these companies are currently exploring –
whether to treat anxiety, post-traumatic stress disorder,
addiction, traumatic brain injury, epilepsy or any other physical
or mental disorders – are in their early stages and will
likely be subject to further significant developments as more
research and testing for efficacy and safety is conducted. We will
continue to monitor developments in the psychedelics industry and
provide updates on the evolving legal and regulatory landscape.


1 Ira Byock, “Taking Psychedelics Seriously”
(2018), Journal of Palliative Medicine, 2018 Apr 1; 21(4):
417–421, online: Mary Ann Liebert, Inc., publishers.

2 CRC, c 870 [FDR].

3 CRC, c 1041.

4 FDR, supra note 2, Pt. C, Div. 1, C.01.001.

5 Canada Gazette, Part I, Volume 154

Ibid, C.08.010(3).

7 The first exemption granted with respect to psychedelics
generally was in 2017, when two churches in Montreal obtained
exemptions to use ayahuasca in connection with a religious

8 Alexandra Mae Jones, “Four terminally ill Canadians get special
exemption to use psychedelic therapy
” (4 Aug 2020) CTV

9 Camille Bains, “Patient hopes Canada will introduce regulations
for psychotherapy with ‘magic mushrooms
‘” (18 Jan
2021), CBC.

10 Cindy E. Harnett, “Former cancer patient finds deep healing in
psilocybin trip
” (13 December 2020), Times Colonist.

11 TheraPsil, “17 Canadian Healthcare Professionals Approved to
Use Psilocybin for Professional Training
” (8 December
2020) [Press release].

12 Karl Yu, “Lab expansion project in Nanaimo to aid magic
mushroom, psychedelics research
” (21 March 2021), BC Local

The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.

© McMillan LLP 2021

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