Why 2025 Could Be the Biggest Year Yet for Psychedelics and Investors

RFK and Psychedelics

The psychedelics industry received a major boost early in 2025 with the nomination of Robert F. Kennedy Jr. as Health and Human Services Secretary. Known for his outspoken support of psychedelic-assisted therapy, Kennedy’s leadership has sparked optimism that federal policy could take a more progressive turn. His potential confirmation is seen by many as a sign that psychedelic therapies may receive greater regulatory clarity and broader acceptance in the near future. This political shift, combined with the wave of state-level reforms, has helped fuel a rally in psychedelic stocks, reflecting growing investor confidence in the sector’s long-term potential. As regulatory barriers begin to soften, the market is increasingly positioning itself for significant breakthroughs in mental health treatment and beyond.

Psilocybin Takes Center Stage

The majority of new bills focus on psilocybin, the active compound in “magic mushrooms.” The growing interest in psilocybin stems from research with increasing evidence suggesting that, under medical supervision and in controlled settings, it could help treat several psychiatric conditions. Studies are exploring its potential to manage obsessive-compulsive disorder, alcohol and substance use disorders, as well as its possible applications for smoking cessation, Alzheimer’s disease, eating disorders, and other health challenges.¹

Nearly every state with psychedelic-related proposals mentions psilocybin, and at least a dozen bills focus exclusively on it. Beyond psilocybin other psychedelics are gaining attention too, some of the most notable bills introduced include:

• Massachusetts: Despite last year’s setbacks, grassroots advocates and state legislators have introduced a record 12 psychedelics-related bills. The proposed legislation includes pilot programs for psilocybin therapy and efforts to establish a state task force to study psychedelics.²
• Oregon: Efforts continue to expand the state’s psilocybin therapy program.²
• Connecticut & Washington: Decriminalization proposals are on the table for psilocybin. In addition Washington lawmakers are advocating for ibogaine research through a partnership with the University of Washington.²
• Missouri & Indiana: Republican support is gaining traction for psychedelics, with proposals for therapeutic access and research funding in traditionally conservative states.
• Connecticut & Rhode Island: These states are exploring decriminalization of psychedelics, alongside regulated therapeutic access, signaling a shift in how psychedelics are viewed in the broader context of mental health policy.²
• New York: Bill A628 seeks to regulate natural plant-based hallucinogens like DMT and mescaline.²

Key Themes in 2025 Psychedelic Policy

State-Regulated Programs

Several states are proposing programs modeled after Oregon’s or Colorado’s state-regulated systems for psychedelic therapy. These programs would offer controlled access to psychedelics for therapeutic use under medical supervision.

Decriminalization Efforts

Some states are pushing to decriminalize personal use and possession of psychedelics. This approach focuses on reducing criminal penalties while creating pathways for future therapeutic access.

Research & Funding

Lawmakers in states like Indiana and Missouri are proposing bills to fund research on psychedelics, particularly for mental health and addiction treatment. Washington’s ibogaine study bill stands out as a unique initiative targeting opioid addiction.

Support for Veterans

Veterans remain a focal point for many bills, with several proposals highlighting access to psychedelic therapies for those suffering from PTSD and other service-related conditions. With an average of almost 17 veterans committing suicide every day this underserved population my benefit greatly from psychedelic treatments. In December 2024, Veterans Affairs (VA) announced a $1.5 million grant to study MDMA-assisted therapy for post-traumatic stress disorder and alcohol use disorder among veterans.³

Clinical Trials

The companies in the chart from Psychedelic Alpha are currently advancing their drug candidates through clinical trials. After completing successful Phase III trials, a company can apply for drug approval. Regulatory agencies then assess data from all phases of the studies to determine whether approval is warranted. For example, the FDA can take up to 10 months to review and approve a New Drug Application.²

Grassroots Momentum & Corporate Influence

While some bills reflect corporate-backed efforts to reschedule psychedelics at the state level following FDA approval, others are deeply rooted in grassroots advocacy. Massachusetts is a prime example, where local activists have been instrumental in shaping policy proposals that prioritize public health and access over corporate interests.

Democrat-leaning states like Massachusetts and Washington are leading the way in sheer volume of bills, though bipartisan support is growing in surprising places, such as Missouri and Indiana.

What to Expect in 2025

The psychedelics industry is at a critical turning point, navigating regulatory hurdles while making significant strides in scientific research. The sheer number of bills introduced already suggests that the conversation is no longer fringe—it’s becoming a key part of broader mental health and drug policy discussions. With state-level reforms gaining momentum and clinical studies progressing, 2025 has the potential to be a game-changing year.

As the sector continues to evolve, investors are increasingly eyeing psychedelics as a expanding opportunity in the mental health and wellness space. Investing in individual psychedelic stocks can be risky due to the early-stage nature of many companies and the uncertain regulatory landscape. Exchange-traded funds (ETFs) may offer an alternative. By investing in the universe of psychedelic companies in a diversified basket, investors may potentially reduce their single-stock risk while positioning themselves to capture the industry’s long-term growth potential as it redefines mental health care and sets new standards for safe, effective, and transformative therapies.

The opinions expressed in this publication are those of the authors and are subject to change. They do not purport to reflect the opinions or views of ETF Central or its members. ETF central does not guarantee the accuracy, completeness, or reliability of the information provided.

Sources:

¹ American Society for Microbiology. Psilocybin and Mental Health: The Magic in the Mushrooms. February 10, 2023.

² Psychedelic Alpha, 2025’s Psychedelic Policy Surge: A State-by-State, Bill-by-Bill Analysis. January 31, 2025.

³ Military Times. VA awards $1.5 million to study using psychedelics for PTSD treatment. December 3, 2024.