Psychedelic ETFs – Discussing the Investment Case with Dan Ahrens

Over the last several years, there have been several major breakthroughs in utilizing psychedelics to treat various medical conditions. As these therapeutics continue to develop, this industry seems primed for growth. The ETF Institute’s VP of Operations, Devin Bos, recently sat down with AdvisorShares’ Dan Ahrens to discuss investing in this sector.

AdvisorShares currently offers 25 ETFs, including one psychedelic ETF. Dan Ahrens is Managing Director and an experienced portfolio manager currently overseeing multiple ETFs in the AdvisorShares suite, including Pure Cannabis ETF (YOLO), Pure US Cannabis ETF (MSOS), Psychedelics ETF (PSIL), and Vice ETF (VICE).

Bos: Can you give me some background on the genesis moment of deciding to launch a psychedelics ETF? Is it something that AdvisorShares has been watching for a while, or did the idea come about from a specific medical study?

Ahrens: The idea for a psychedelics fund followed the great investor interest we’ve had in AdvisorShares’ two cannabis ETFs (AdvisorShares Pure Cannabis ETF – YOLO and AdvisorShares Pure US Cannabis ETF – MSOS). Investing in psychedelics seems a little bit like investing in cannabis back in 2017 or 2018 when it was just in its infancy. And there’s a lot of overlap with supporters of medical marijuana for pain management.

Bos: Most of the discussions around using psychedelics seem to be treating mental illnesses and neurological issues. Can you give us some insight into some of the specific use cases? Are there particular disorders that have been found to benefit significantly from this therapy?

Ahrens: I think it’s widely agreed that our modern world has a problem with over-use and abuse of opioids and with the prescription of anti-depressants. Psychedelic treatments are proving to be very useful in the treatment of many cases of traumatic brain injury, PTSD, depression, and other issues – and hopefully, one day could replace much of the current dependence on opioids and typical anti-depressant medications.

Bos: Since PSIL is a global fund, what does the political and legal landscape look like in the US and internationally? 

Ahrens: We’ve seen some states and some countries look to decriminalize or legalize the use of psilocybin (mushrooms), which shows the general movements towards greater public acceptance, but small, recreational use isn’t what we’re really talking about here. Companies that we invest in are genuine biotech, pharmaceutical, and mental health companies working with serious mental and neurological treatments.  

Bos: Can you give us some insight into the sizes of the companies based on market cap and maybe a few companies included in the current allocation?

Ahrens: Investors should understand that this is a very new emerging industry. Any fund that invests in a very narrow area already has a great amount of risk, but this particular area is just getting off the ground, and the risk can be rather extreme. The companies we invest in are almost exclusively micro-cap being under $ 1 billion in market cap. In many cases, some companies are at just a few hundred million in market cap or even below $100 million. Most of the companies that we invest in are very early stage, and may have drugs or treatments in a trial but may not even yet have revenue. They are valued based on their potential pipeline and intellectual property.

Bos: Assuming that most investors would invest in this fund as a satellite holding to potentially enhance their alpha, do you have any specific thoughts or advice on how an investor should consider allocating to this theme?

Ahrens: While we think this is a terrific early-stage investment opportunity, investors should understand that with great opportunity comes great risk and volatility. We think investors should use the ETF in the way that best fits their investment goals. For those who want to invest for the long term, we always like dollar-cost averaging, especially in what should be a volatile category; however, some investors will want to be more tactical, and they can use PSIL to tactically manage their exposure as well. Like we do with our cannabis ETFs, we think that educating and communicating with investors is crucial. PSIL can provide an advantageous way to invest with diversified exposure to multiple companies via a single ticker.

Bos: Many advisors may see this as an excellent opportunity to get in early on an emerging growth opportunity. Any advice for how to frame the conversion to their clients?

Ahrens: I think you already did frame it! It could be a great opportunity to get in very early on a potentially great emerging growth opportunity. Psychedelic treatments could really help a great many people in need where current drugs and treatments fail. The investment opportunity could be huge, but this space is still very, very early.

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