America is in a ketamine boom. The drug, which has rapid-acting antidepressant properties and somewhat psychedelic effects, is still taken recreationally by club kids and students. But in the past decade, many thousands of patients have undergone legal therapy under its influence and hundreds of ketamine clinics have sprung up across major cities. There are 12 clinics in Manhattan alone.

But the burgeoning industry, like the wider emerging psychedelic industry, is experiencing growing pains. One of the largest startup clinic chains offering ketamine treatment has just gone bust, another is in dire straits, and others face uncertainty. Why are so many ketamine clinics struggling, even as demand is increasing?

Most believe it’s because the industry expanded too quickly. Groups of clinics fought for a slice of the estimated $3bn pie (that’s how much the industry is expected generate in revenue between this year and 2029). But with millions invested by private equity, investor patience for some clinics is running out.

That’s something Hannah, a former US soldier, discovered the hard way. She suffers from extreme fatigue, brain fog, and anxiety. After years of ineffective treatments, she finally began making progress with her mental health after receiving ketamine intravenously at a specialist clinic earlier this year.

But when she arrived for her third treatment at a Ketamine Wellness Clinics (KWC) facility in Minnesota on 10 March, the center was mysteriously locked without explanation. “I was confused,” she says. “I didn’t know what had happened until I saw the news on Reddit.”

She is just one of many left in the lurch by the sudden closure of KWC, formerly one of the largest ketamine clinic chains in the US, operating 13 sites out of nine states. “I was devastated and I’m still very frustrated,” she adds, with the shuttering coming days after its owner warned of “ongoing capital market challenges”. (The Guardian was unable to reach KWC after several attempts.)

Hannah is now on a waiting list at another provider that is covered through Veterans Affairs (VA) insurance and she will not restart treatment until the summer. “KWC has not responded to my requests for my records,” she says. “It’s devastating: I finally had hope for my mental health but now it feels like my life is on hold.”

KWC is not the only company to recently have left their patients scrambling to continue their treatments elsewhere. Its fellow market leader Field Trip, the first psychedelic company to list on Nasdaq’s top tier, is this month to close four of its US centers, from Chicago to San Diego, amid restructuring efforts to stay afloat. It is also seeking a new owner despite raising almost $100m in funding before sustaining serious losses. It “has always been a cash-flow-negative business”, a recent court document states.

“The psychedelic bubble was wildly inflated,” tweeted Benjamin Ramm, author of the forthcoming book High Definition: A Vision for our Psychedelic Future. “Field Trip Health planned 75 centers across the US by 2024! Their rapid scaling was unsustainable and shows the limitations of startup zeal. From the peak of inflated expectations, we have collapsed into the trough of disillusionment.”

Actify Neurotherapies, which was also backed by private equity, abruptly closed all of its dozen clinics in 2020. Like KWC, it practically disappeared overnight.

Some analysts believe that as many as seven in 10 psychedelic companies face serious challenges due to a banking crisis, which means that capital is scarce. One has warned of an impending “bloodbath”.

“It’s a wild, wild west,” says Lauren Taus, a ketamine-assisted psychotherapist who has a private practice. “There has been a mad dash to commercialize led by businesspeople who have seen a money-making opportunity but have not understood what is necessary to make it work.”

Premature expansion, delays to health insurance coverage payments and investor impatience have been key to these closures. But some experts also point to the even swifter rise of telehealth startups that were able to begin sending cheap prescriptions of ketamine to people’s homes without an in-person assessment.

Companies offering remote therapy, such as Better U and Wondermed, provide much cheaper direct-to-door deliveries of ketamine in therapy packs – one provider offers 30 daily doses for $129 a month. They’re accompanied by Zoom calls with therapists, playlists, guided meditations, educational information and eyeshades, meaning people do not even have to leave their homes. In a choice between expensive in-person ketamine assisted therapy, and cheap ketamine candy sent straight to your home, many unsurprisingly chose the latter.

Pandemic measures in the US and elsewhere sanctioned remote prescriptions of controlled drugs, though these may soon end.

In the meantime, telehealth operators aggressively market to vulnerable potential clients on social media with targeted ads and repeatedly follow up with anyone expressing interest. “They are glorified drug dealers,” Taus says. The services offered by providers vary greatly, but some outfits do not rigorously assess patients for medical need, and then fail to provide adequate integration therapy following breakthrough psychedelic experiences. “They are not paying attention to what’s actually going on in people’s psyches. People are getting prescriptions to party with,” says Taus.

In the process of reporting this story, I posted on the TherapeuticKetamine message board, which has 28,000 members. Shortly afterwards I was offered an integrated treatment package which included 20 doses of ketamine either through slow-releasing lozenges, often emblazoned with company logos, or a bottle of a nasal spray, which is easier to misuse, for $495 by an organization on Reddit. It apologized for messaging “out of the blue” when I challenged it.

The tumultuous developments in the unregulated ketamine industry could serve as a cautionary tale for advocates of medicinal drug legalization, with MDMA and psilocybin mushrooms likely to be approved by regulators for medical use within the next couple of years. Some fear that an emerging “corporadelic” and intensely profit-seeking clinical culture could dash their hopes of a psychedelic healing utopia.

“The majority of ketamine clinics do not provide adjunct psychotherapy,” claims Natalie Ginsberg, global impact officer at the Multidisciplinary Association for Psychedelic Studies (Maps), a research and advocacy group. “A lot of these companies are forced by standard business practices to maximize profit for their shareholders, which inevitably leads to decisions that do not prioritize patient outcomes and healing.”

A lack of support could become particularly fraught during a strong ketamine trip because of the risk the lone user is sent into a potentially terrifying “K hole” where one loses all awareness and may feel as if they are falling down steep drops.

“I understand it can be really helpful for people, and the most important part is that [at home treatment] it’s much more affordable, but doing it alone at home requires a much higher level of support than is currently being provided on the whole,” adds Ginsberg. One company reportedly outsourced aftercare to a smart phone app which doled out generic responses to crisis-stricken patients’ questions and concerns.

Ginsberg says clinics still represent a viable business. “I live in LA and there are ketamine clinics everywhere,” Ginsberg says. “Telehealth is not killing the clinic business but many people will opt for both cheaper and more convenient ways of doing this work.”

For many, it’s not a choice. They cannot afford to go to a clinic and pay hundreds of dollars per intravenous session – of which at least half a dozen are usually required. “A lot of people see ketamine clinics as this great business to go into to make huge margins, because ketamine itself is so cheap,” says Ben Spielberg, the founding CEO of Bespoke Treatment, which offers ketamine infusions.

“But it really couldn’t be further from the truth: the cruel absurdity is that the people who benefit the most from ketamine therapies can rarely afford it. Many of them are on disability due to their mental health conditions and $400-$600 per infusion is an insurmountable obstacle.

“Working with insurance companies is excruciatingly difficult, and requires additional layers of oversight, complexity, and staffing,” adds Spielberg. “It increases expenses on the clinic side, slows cash flow, and reduces income.”

Some insurers are starting to cover ketamine therapy, but things are likely to only get more competitive for existing clinics once Oregon begins offering legal guided therapy with psilocybin mushrooms in the second half of 2023 and Colorado follows suit after that. People seeking therapeutic psychedelic trips will have an increasing number of options.

“Ketamine works really well for a lot of patients, but the ketamine industry doesn’t,” Spielberg laments. “We’ll keep seeing more ketamine clinics pop up as people think they can make a quick buck; and when macroeconomic conditions shift, we’ll see consolidation, reckless scaling, and eventual bankruptcies when conditions swing back.”