Episode Summary
In this episode of Psychedelic Investment Insights, host Nick Mazing from AlphaSense sits down with Dan Ahrens, the portfolio manager at AdvisorShares Psychedelics ETF (NYSE: PSIL). Together, they delve into the rapidly evolving world of psychedelic investments and the key differences between investing in the psychedelic and cannabis sectors. Dan highlights the importance of understanding the psychedelic market as a biotech-driven industry and discusses its unique challenges and opportunities.
Throughout the conversation, Dan outlines the factors investors should consider when examining psychedelic companies, such as their intellectual property and FDA pipeline. He also shares valuable insights about the major players in the sector, including Compass Pathways and Cybin, and how their groundbreaking treatments have the potential to revolutionize mental health care.
Finally, the discussion turns to the advantages of investing in a psychedelics-focused ETF, like AdvisorShares’ PSIL, which offers investors transparency and exposure to a curated selection of innovative companies within the industry. This episode is a must-listen for anyone interested in the growing field of psychedelic investments and the future of mental health treatments.
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Guest-at-a-Glance
💡 Name: Dan Ahrens
💡What they do: Portfolio Manager, AdvisorShares Psychedelics ETF (NYSE:PSIL)
💡Company: AdvisorShares
💡Noteworthy: Expert in cannabis and psychedelic investments
💡 Where to find them: LinkedIn Twitter Dan’s Book on Cannabis Investing
Key Insights
Differentiating Cannabis and Psychedelic Investments. In the episode, Dan Ahrens highlights the key differences between investing in cannabis and psychedelics. While cannabis stocks are evaluated based on revenue, cash flow, balance sheet, and survivability, psychedelic investments are treated more like biotech stocks, trading on intellectual property and FDA pipeline. These investments can be volatile, but offer long-term potential. Understanding these differences is crucial for investors looking to enter the psychedelics market.
Potential Applications of Psychedelics in Mental Health Treatments. Dan Ahrens discusses various studies examining the use of psychedelics, such as ketamine and psilocybin, in mental health treatments. The episode covers potential applications for depression, treatment-resistant depression, ADHD, and Alzheimer’s. These promising developments showcase the potential of psychedelics in addressing a wide range of mental health issues and underscore the value of investing in this emerging sector.
Key Holdings in AdvisorShares’ Psychedelic ETF (PSIL). Dan Ahrens shares insights on the largest holdings in the AdvisorShares Psychedelic ETF (ticker: PSIL), which offers daily transparency on its investments. Compass Pathways and Cybin are among the top holdings in the fund, both working on psilocybin-based treatments. The ETF aims to provide pure exposure to the psychedelics sector, avoiding companies that only dabble in psychedelics. This approach allows investors to gain targeted exposure to the promising world of psychedelic therapies.
Episode Highlights
The Psychedelics Market and Investment Landscape
In the conversation, Dan Ahrens explains that the psychedelics market is a unique and emerging space, distinct from the cannabis industry. Although both industries have experienced downtrends in 2022, the investment strategies for each differ significantly.
“Cannabis is very, very different from psychedelics. Psychedelics is very much a drug development, biotech, FDA trial market, with a very large, very substantial, medical side… Psychedelics is very, very different.”
Volatility and Upside Potential in Psychedelic Investments
Dan Ahrens emphasizes that psychedelic investments are highly volatile, similar to other microcaps. However, these investments offer significant upside potential and long-term growth opportunities for investors who understand the risks and the unique nature of the industry.
“We think we have a lot of upside. We think it’s a very long-term thing, but I want to warn people, these investments can be very volatile. It’s very much a microcap type of market.”
The Actively Managed Approach of AdvisorShares Psychedelic ETF
Dan Ahrens discusses the actively managed approach of the AdvisorShares Psychedelic ETF (PSIL), which focuses on selecting companies based on their potential, rather than following a passive index strategy. This approach aims to offer investors a more targeted exposure to the psychedelics sector.
“Active doesn’t mean I’m trading it every day, doesn’t mean I’m overly active… In many cases, active ETF simply means it’s not based on an index. An index might mean you’re just blindly putting every psychedelics company in there.”
Compass Pathways and Cybin – Top Holdings in PSIL
Dan Ahrens explains that Compass Pathways and Cybin are the top holdings in the AdvisorShares Psychedelic ETF (PSIL). Both companies are working on psilocybin-based treatments, showcasing the potential of the industry in addressing mental health challenges.
“The number one holding is called Compass Pathways… They have treatments in their pipeline, based on psilocybin… The second largest company in the fund is Cybin… they have a number of treatments and drugs in FDA trial.”
Full Transcript
[00:00:00] Dan Ahrens: The important thing to understand here is we’re talking about real mental health treatments. We’re talking about biotech and pharmaceutical companies now. It’s interesting to me and I find it, you know, a good movement in the right direction.
[00:00:14] When I hear about cities, counties, various places looking to decriminalize recreational shroom use and, and other drugs, you know, that, that’s great, but that’s not really what we’re talking about here because I run an exchange-traded fund. An exchange-traded fund that’s listed on the New York Stock Exchange and that fund, in turn, invests in
[00:00:39] publicly traded, publicly listed corporations that specialize in, or it’s a big part of their business, psychedelic treatments for depression, even traumatic brain injury on the far end, anxiety, PTSD, even anorexia.
[00:01:13] Nick Mazing: Hello and welcome. You’re listening to Signals by AlphaSense, and I’m your host, Nick Mazing. Today we’re gonna also talk about psychedelics and the companies involved in their development. It’s a very interesting emerging space, and our guest, Dan Ahrens, is a legend in the investing world. He’s the original Portfolio Manager of the Vice Mutual Fund,
[00:01:32] very famous fund that is actually still around incredible longevity. Dan has also written a book on cannabis investing, and we’re going to have the link in the show notes. Currently, Dan is the Portfolio Manager for the AdvisorShares Psychedelics ETF, Ticker PSIL. In the interest of food disclosure, I’m personally long another ETF managed by Dan, Ticker MSOX, which is the multi-state cannabis operators.
[00:02:01] Dan, welcome to the podcast and can you tell us a little bit more about you, AdvisorShares and your ETFs?
[00:02:08] Dan Ahrens: Sure. Thanks for having me on, Nick. Yeah, as you said, in my past, I did create the Vice Fund Mutual Fund, ran it for its first three years and quite successfully, when I left there, I think it was a four-star rated fund, and in the top 1 or 2, 3% in its lipper categories. I even ran another, uh, five-star rated, large cap-growth fund back there.
[00:02:32] And at that time, I wrote a book called “Investing in Vice,” that’s St. Martin’s Press. I’ve been at AdvisorShares, AdvisorShares is an ETF company, exchange-traded funds, since its founding, 12, 13 years ago. One of the very first employees of the firm that was founded by Noah Hammond. But AdvisorShares really wants to be an innovator.
[00:02:55] We really want to be a first mover in a lot of the, you know, ETF strategies. We were one of the first funds to get an exemptive relief, it’s called, for actively managed ETFs. Then we got another exemptive relief allowing us to do, um, unsponsored or over-the-counter ADRs. We were the first firm to do a long-short equity ETF,
[00:03:18] to do a, an ETF that shorts individual stocks. And as you alluded to, we’ve certainly been innovators in the cannabis and psilocybin or psychedelics areas, creating ETFs where others maybe didn’t think they could exist before. We were the very first firm to invest in US plant-touching cannabis funds.
[00:03:42] We had to a lot of negotiation with our custody bank and the New York Stock Exchange, the SECS asked to get opinion letters and you know, we really opened a lot of doors with the work that we did, and we’ve had other copycats since then. The fund that you said you invest in, Nick, thanks for your investment.
[00:04:00] MSOS, that’s the largest cannabis fund in the world, even though, uh, full disclosure, cannabis has had a very difficult time, performance-wise in the last two years. It’s been a long, painful drawdown, but at some point, uh, we believe that’s gonna change. But, yeah, we’re basically the largest cannabis investors in existence.
[00:04:23] Nick Mazing: Mm-hmm. Now let’s talk about the, you know, psychedelics and the potential applications and what is important to know in terms of kind of background information. We’re talking about both natural substances like psilocybin, right, which you mentioned already and synthesized substances like ketamine, like MDMA, you know, not for recreation use, to be clear.
[00:04:48] Can you give us an overview of the major substances and the potential applications, which largely center on mental health?
[00:04:56] Dan Ahrens: Exactly. And you did mention the, the primary substances, but it also dovetails into cannabis. When we look at the potentially uses of cannabis that are just scratching the surface because it’s a schedule one drug still, unfortunately, but it’s pretty obvious when, um, many states have allowed medical marijuana,
[00:05:21] that it’s useful for PTSD and depression and much better than opioids for pain man management. All sorts of uses and the cannabis plant contains a large number of cannabinoids that biotech and pharmaceutical companies have barely begun to test on because of the schedule one stigma. Now back to psychedelics.
[00:05:47] You know, you mentioned the, the major substances, psilocybin from mushrooms, but the important thing to understand here is we’re talking about real mental health treatments. We’re talking about biotech and pharmaceutical companies. Now, it’s interesting to me and I find it, you know, a good movement in the right direction
[00:06:09] when I hear about cities, counties, various places looking to decriminalize, recreational shroom use and, and other drugs. You know, that, that’s great, but that’s not really what we’re talking about here because I run an exchange-traded fund. An exchange-traded fund that’s listed on the New York Stock Exchange, and that fund, in turn, invests in
[00:06:34] publicly traded, publicly listed corporations that specialize in, or it’s a big part of their business, psychedelic treatments for depression, even traumatic brain injury on the far end, anxiety, PTSD, even anorexia. You know, I think it’s easy to admit in our country or if not the world, that we have a opioid crisis, overprescription of opioids.
[00:07:07] But let’s look a little bit further. How about over-prescription of antidepressants, ADHD treatments? There’s all sorts of very valid uses for psychedelic treatments. And we have companies that have various intellectual property, their IP, they have treatments and drugs in FDA trial for very important uses that could help circumvent the drug problem that we have in the United States.
[00:07:40] Now, the problem is this gets into a push-pull with Big Pharma. Because I’m investing in more often mental health, biotech, pharmaceutical companies, but we’re talking about microcap companies, small companies trying to grow, and Big Pharma, on the other hand, might want to acquire those companies at some point for the intellectual property that they have,
[00:08:06] but there’s also a push-pull, as I said in that these psychedelic natural treatments could greatly cut into the cash pipeline of these pharmaceutical companies that are making a lot of money from prescribing opioids and antidepressants and all the other drugs. So, that’s sort of where we sit now.
[00:08:30] Nick Mazing: And the next question that I have kind of builds on that, you know, when, when you look at, you know, apparel to cannabis or rather like there as a parallel, so cannabis, mostly recreational use, legalization has been progressing, you know, depending on state and all, but it’s practically legal across most of the country for recreational use.
[00:08:51] In contrast, in contrast, the efforts that, you know, were, were discussing here are mostly medical and not recreational, what can you specifically tell us in terms of targeted, therapeutic areas and so on, that that is going on right now in terms of studies and?
[00:09:09] Dan Ahrens: No, it’s a very interesting question, Nick. And, um, last week I was at a, a pair of conferences down in Miami, uh, a cannabis conference followed up by a psychedelics conference where I was the speaker and so on. So, these often get, you know, thrown in a bucket together. A lot of the investors interested in these areas are the same investors.
[00:09:29] A lot of the cannabis movement came out of the medical marijuana and treatment side of things. You know, it’s a, it’s a plant that’s also a medicine and can treat a lot of things. But when we talk about investability and the real growth of cannabis, it’s on the adult use side, or some people call it the recreational side, but adult use. And the companies that you know, we can invest in more often are making their money more from the adult use side.
[00:10:03] There’s some, you know, very large, very substantial, medical side as well. On the other hand, so even though we’re at the same conferences and we have a lot of the same investors, psychedelics is very, very different. Again, you know, I applaud some municipalities, counties, other places that are looking to decriminalize, you know, the use of psilocybin and other similar drugs, but that’s not investible. For investing in psychedelics,
[00:10:32] we’re really, really talking about investing as one would, and looking at companies that’s one would in the biotech market. Most of the time, these companies are pre-revenue, pre-profit. They’re gonna trade based on their IP, their intellectual property, and, you know, drugs that they might have or treatments they might have in the FDA pipeline.
[00:10:55] And that’s how people trade biotech stocks. That’s where Big Pharma separates from biotech. Biotech is very often smaller, maybe microcap, maybe small cap, very volatile, pre-revenue trading on their pipeline. Same thing with psychedelics here. You know, we, we think we have a lot of upside, we think it’s, uh, a very long-term thing, but I wanna warn people, these investments can be very volatile.
[00:11:25] It’s very much a microcap type of market and but there’s a big difference that people need to understand between cannabis investing and psychedelics investing. Even though they were both down last year in 2022, we look at cannabis stocks based on their revenue, on their cash flow, on their balance sheet, on their survivability.
[00:11:45] These psychedelics companies, you’re really looking at ’em as you would a biotech stock.
[00:11:49] Nick Mazing: Now, I think that, I think it’s a very interesting space when you, when you look through all the studies and, you know, it’s depression, it’s, you know, there’s no resistant depression with ketamine, with some things we around MDNA, ADHD, those was one, two, kind of look at Alzheimer’s and so on. So, what can you tell us about the largest holdings in your ETF?
[00:12:08] Dan Ahrens: Certainly. Now, an interesting point for everybody, it’s kind of the beauty of an exchange-rated fund or ETF, is we have daily transparency. So, at our website, AdvisorShares.com, you can look at the fund AdvisorShares Psychedelic ETF, Ticker symbol, as Nick said, PSIL, that’s short for psilocybin, but the holdings are right there.
[00:12:31] And hey, if you just wanna spy on what we’re doing, get ideas and invest on your own, feel free. We, we think investing in an ETF is a good idea because it’s listed on the New York Stock Exchange. You can buy a basket of these stocks, you know, all in one trade. You can use limit orders,
[00:12:48] there’s all sorts of, you know, reasons for an ETF, but that’s beside the point. The other thing about an actively managed ETF, active doesn’t mean I’m trading it every day, doesn’t mean I’m overly active. The prospectus doesn’t say that it’s meant to be a tactical strategy. In many cases, active ETF simply means it’s not based on an index.
[00:13:07] An index might mean you’re just blindly putting every psychedelics company in there and the biggest ones are weighted the most. So, no, we’re actually making choices, selecting which companies we want, and therefore, when you look at our holdings on our website, you know, I call it a little bit of a voting machine.
[00:13:28] The number one holding is called Compass Pathways. It’s number one for a reason. We decided to make it the largest holding in the fund. Now, Compass Pathways is, uh, listed as a healthcare company, mental health treatments. They have treatments in their pipeline, um, based on psilocybin. And it’s a London-based company, but it’s listed, again, on, uh, on the US exchanges
[00:13:52] and it’s also, you know, has operations in the United States. The second largest company in, in the fund is Cybin. Cybin is another, they’re really listed as a biotech company. When you read their description again, you’re gonna see they have a number of treatments and drugs in FDA trial, and again, psilocybin based. You know, you can look at the, the rest of the holdings and, you know, there are some other companies that aren’t solely based on psilocybin, but
[00:14:19] we included ’em in the fund because they do have some psychedelics-related things. But what you’re not gonna see in here is Johnson and Johnson, Pfizer. You know, some of those companies are dabbling in psychedelics a little bit, but no, we want this fund to be pure psychedelics exposure. Real psychedelics exposure,
[00:14:44] not a bunch of filler. So, there’s other names that people are gonna be unfamiliar with, but again, look at the holdings. That’s the beauty of an ETF, it’s right there for you to see. And there’s other names that people might have heard, like ATAI, like MindMed. You know, I wanna point out, uh, an interesting one that’s Psylos,
[00:15:03] and we’ve had their executives on, um, some of our live streams, which we try to have a lot of online presence and education, but Psylos has a very unique ketamine treatment for acute suicidal tendencies. Well, actually acute suicidal ideation, I guess, it’s called. But it’s very important.
[00:15:27] And when you look at what all these different companies are doing and what their treatments can be provided for, it makes us kind of excited for the future. But I wanted to point out Psylos as an extremely interesting one that now their drug can actually be used in emergency rooms, you know, in the heat of it when there’s a suicide at risk. I find that interesting.
[00:15:51] Nick Mazing: Dan, thank you for joining us. This was a great overview of the Psychedelics investing landscape with Dan Ahrens, Portfolio Manager of AdvisorShares Psychedelics ETF Ticker PSIL. We have all the relevant links in the show notes. My name is Nick Mazing. This is Signals by AlphaSense. Thank you for listening.
