“The important thing about psychedelics is we’re talking about legal biotech and pharmaceutical companies doing research and wanting to have future FDA-approved drug therapies that happen to involve psychedelics,” Ahrens said. “We’re talking about medical as opposed to recreational uses. These are legally operating companies; we’re not talking about the gray area of what may or may not be legal in different jurisdictions.”
His latter point refers to cannabis, which is also a Schedule I drug on the federal level but is legal in certain states. That makes it a sticky wicket for funds to invest in because U.S. banks and stock exchanges don’t want to violate federal laws by dealing with companies involved with cannabis. As such, some cannabis ETFs—including the AdvisorShares Pure US Cannabis ETF (MSOS) and AdvisorShares Pure Cannabis ETF (YOLO) that Ahrens manages—often have to go with Canadian-listed companies (cannabis is legal north of the border) or invest indirectly in companies not listed on major North American exchanges via swap options on those companies.
As part of their mandate, the MSOS and YOLO funds, along with the new PSIL fund, can invest directly only in the equities of companies listed on the NYSE and the Nasdaq in the U.S., and the Toronto Stock Exchange and the TSX Venture Exchange in Canada.
As described in fund literature, due to custody limitations, investment exposure to OTC and foreign-listed stocks may be via swap contracts, which means the PSIL fund at times could have a larger than normal cash position as some cash may be held as collateral for the swaps.
But the need for swaps should decrease as more companies doing medicinal psychedelic work list on the major exchanges. The majority of PSIL’s portfolio will comprise North American companies, along with some from the U.K. and Europe.
The fund charges an expense ratio of 0.68%. That’s less than the 0.75% fee on the Defiance Next Gen Altered Experience ETF (PSY), which launched in late May and trades on the NYSE, as well as the 0.85% charged by the Horizons Psychedelic Stock Index ETF (PSYK), a product that launched in January and trades on the NEO Exchange in Canada.
The Defiance fund has had a slow start with just $9 million in assets, while the Horizon product has garnered $60 million in assets. While the Horizon fund had a nice pop for a few weeks after it debuted in January, it has been downhill since then regarding price performance. And the share price of the Defiance fund has taken the down elevator since it launched.
The upshot is that while the world of investible psychedelics is fresh, edgy and loaded with upside potential, it’s such a ground-floor opportunity that investors will need to be patient before this psychedelic trip takes off.