Prepping the psychedelic industry for MDMA approval

The closure of ketamine clinics (and how successful ones can serve as a template for future clinics) has raised questions about the future of real estate in psychedelics, especially with a big industry catalyst looming in the distance.

Green Market Report spoke to Cody Shandraw, President of Healing Realty Trust, about the psychedelic medicine industry and the need for new infrastructure to accommodate MDMA-assisted therapy, which will likely be approved by the FDA in August.

Shandraw shared his observations on how the introduction of new treatments requires clinics to adapt, notably in how patient care is structured around longer treatment sessions.

That adaptation process sparked the idea behind HRT, which aims to address the lack of infrastructure for clinics offering in-person therapy treatments such as MDMA and psilocybin. The firm’s efforts also include working with those interested in training existing legacy practitioners rather than expanding physical clinics.

This interview has been edited for length and clarity.

GMR: What needs to happen ahead an MDA approval this summer?

Cody Shandraw: It’s going to be a monumental effort. Rick Doblin, the former president of Maps and now CEO of the PBC, stated publicly that 16,000 clinics need to be built to deliver treatment to 1.1 million people. You probably have to fact-check me, but I believe there are 9 million people diagnosed in the United States with PTSD. So, this isn’t just a veteran story, right? I mean, police officers, firefighters, domestic abuse survivors. I mean, the range of PTSD goes a long way.

It’s going to take an unbelievable amount of capital and an unbelievable amount of data to figure out exactly where these population centers are of the people that are suffering. And then obviously, we need to get to work on renovating existing buildings and getting some of these newer buildings built out.

GMR: What does that entail other than building turnkey clinics?

Cody Shandraw: Number one, most importantly, is the training. MDMA is a very unique substance, right? Because of the hallucinogenic effects and the feelings of euphoria, it actually lowers the amygdala, the fear response of the brain. So that’s the reason why it works so well for PTSD, is a lot of the times when you go to a therapist, PTSD, you’re not willing to share those deep and intimate moments by lowering the fear response.

That’s what these breakthroughs are able to have. However, clinicians need to be trained on this. Two therapists need to be in the room during the administration of the drug. So there is going to be a giant need for trained therapists to come along line with that.

We’re talking to a lot of legacy types of people, eating disorder clinics, drug and alcohol abuse clinics… this is going to be spread out. I don’t think that this is going to be a story of 16,000 MDMA clinics popping up. This is going to be a story of behavioral health services providers getting new facilities as a part of their existing practice in order to treat these people at those separate facilities. The training is obviously front and foremost to mind.

GMR: I was thinking about all the ketamine closures, and I am wondering how that balance is found when it comes to a psychedelic-assisted therapy real estate strategy.

Cody Shandraw: I guess fortunately, and unfortunately, being a shareholder in some of those, it was not the best situation, but the ones that did end up becoming successful are now going to end up becoming kind of the McDonald’s and Burger Kings of this industry. They understand what it takes to run a profitable practice, they understand what it takes as far as staffing goes, they understand what the requirements are for the integration side. The administration is one thing, but integrating these people after the treatment is going to be a whole ‘nother thing.

Anytime an emerging industry pops up, you kind of have that consolidation phase, right? Because it’s like a gold rush. Everybody’s rushing for those gold nuggets in the ground. What a lot of people don’t realize though, is what is required to actually become successful in that are two completely different things.

So really the closures of the ketamine facilities were probably one of the best things that could have happened to this kind of blossoming industry. Because you had now the ability of investors, operators, and real estate companies to be able to look at the companies that are doing it successfully. And now that’s kind of the base template for how some of these other clinics should be run and operated.

GMR: What do you think is one of the most important parts of the real estate question that you think we’re not mentioning right now?

Cody Shandraw: Let’s say this drug (MDMA) is approved (for mental health therapy) in August of this year. There are probably less than 50 centers nationally that are going to be able to start offering treatment. So yes, it’s going to be a giant win not only for the entire industry and for the healthcare side of the business, because it’s a new treatment option for their patients that have been struggling.

And obviously, a lot of us have seen the last couple of years that SSRIs are probably overprescribed and haven’t been up to the efficacy levels that everybody had hoped for on the treatment side, right? So, the lack of infrastructure for these medicines to be given is going to be the story.

You look at Spravato — that’s a blockbuster drug now. And why is that? Because there wasn’t a clinical infrastructure to commercialize that asset. That was the problem. How do you take a drug and turn it into a billion-dollar drug if this isn’t done inside a clinic? That’s the know.

Other than proton therapy, and dialysis — a lot of healthcare is moving away from the hospital. Right now, you get a prescription, you go to Walgreens, you pick it up, and it lives on your countertop. That’s never going to be the case for this. You’re always going to need to go into a clinic. Looking from MAPS’ point of view, the best thing that could ever happen to a company like ours is to succeed and go through and actually grow the clinic footprint across a country that can offer these services so more people can be treated.

I really, truly believe that as big as a win as this story is going to be in August, I have a feeling that by December it’s going to be a woe-is-me story about how there aren’t enough doctors offering services because they don’t have the facility to do so.

Think about Johnson & Johnson (NYSE: JNJ), one of the top three drug companies in the world. It took them three and a half, four years for the commercialization to really roll on Spravato because of the lack of infrastructure. A company like Lykos… are they going to have the same multi-hundred million- or billion-dollar marketing budget that Spravato is going to have to advertise this drug? Probably not.

The infrastructure side and the education side are going to be a huge component of this because I talk to a lot of doctors who are super interested, and they’ve been following the space closely for the last couple of years. But they’re like, I’m not going to be able to do this at my existing practice. So, where is this going to happen?

GMR: What do you think about the future of insurance coverage?

Cody Shandraw: There are five billing codes already approved. You have to remember there are three drug administrations, and then there are twelve therapy sessions that are associated with the protocol. If you look today Blue Cross/Blue Shield, Medicare, Medicaid, Aetna — all these guys are already reimbursing for Spravato, right?

If I’m an insurance provider, do I want to pay for treatment for somebody for the rest of their life to deal with these indications? My shareholders would say absolutely not. Let’s find a way to get them treated.

73% of every single person that went through the MAPS protocols did not qualify for a PTSD diagnosis afterward. So, it worked. If I were an insurance company, I would much rather pay for this one-time cost instead of having somebody on medication and going to a doctor for the rest of their life.

We talk about Field Trip and the closures. What is the main catalyst for Field Trip closing? It was all cash pay. How many people had an extra $5,000 for ketamine therapy through Field Trip? Almost nobody. You look at successful companies like Neurospa in Tampa. They’re the largest Spravato provider in the state of Florida, and they’re concentrated in just the Tampa region. They have four or five (six) clinics today. They’re doing almost all insurance reimbursements. They don’t do barely any cash pay. Less than 5% of their business is cash pay. It’s almost all insurance.

So, finding that mold and what’s going to work and what isn’t going to work. Realistically, the story is going to be the insurance side. And that’s, again, why I get back to the legacy types of healthcare providers that are already billing insurance and already know how to do that.

GMR: What is your twelve-month outlook?

Cody Shandraw: We just kicked off 21 days ago, a $25 million capital raise. The interest has been amazing. We’ve met 67 investors in just the last two events. There could be a situation where we end up oversubscribing the $25 million round. Because this touches a little bit of everything, right? Everybody knows someone who’s been affected by a mental health condition.

You look at a lot of these facilities right now — while MDMA is front of mind, ketamine is already out there in the market. Remember, these are going to be dual-purpose centers because they’re long-duration therapies. As soon as a psilocybin product, these centers are going to be used for psilocybin, too. So, there is not going to be any shortage. The pipeline has grown just in the last 52 days. On January 1, we were at 48 million in real estate in our pipeline. We’ve more than doubled the pipeline in a month and a half and we’re seeing new deals every single day. Like I said, we’re drinking from a fire hose right now. It’s almost difficult to manage.

We’re actually in the process right now of looking to hire two additional analysts just to go through a deal flow because it’s been such an overwhelming experience getting the amount of inbound interest that we had on the real estate side.

GMR: Is there anything that you’d want to leave me with that you think is important to the conversation? I know post-August is probably your biggest focal point.

Cody Shandraw: Yeah, I mean, that’s the biggest. And then company-wise, we’re bringing a team on to scale this extremely quickly. We brought on Joe Cal, the former founder of Cresco Labs, one of the largest MSOs in the country. He was a vice president at Guaranteed Rate, one of the largest mortgage companies in the country. Left that company, started Cresco, grew Cresco to one of the largest multi-state operators.

We just brought on two recent board members. Jared Chicago, who was the former CEO of Brookfield Properties, managed $150,000,000 in assets. Brought on Shant Banosian, who was the number one loan originator in the entire United States. Closed $9 billion of transactions alone himself.

We’re focused on making sure this company can grow at the same demand in the market that there is for these types of healthcare properties to be built. I’m setting this thing up to hopefully be a public company in the next 18 to 24 months. That’s going to be the big story here. We’ve engaged Piper Sandler out of New York. They’ll probably be handling the IPO at some point. The main thing is just focusing on growth and how we’re going to be able to accommodate the amount of interest that we pass on the real estate side.

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