CashNews.co
The one-for-ten reverse split for the AdvisorShares Psychedelics ETF starts with today’s trading. The split will not change the total value of a shareholder’s investment.
That means every ten shares of the fund will be exchanged for one share. Furthermore, the total number of issued and outstanding shares will decrease. In addition, the per share net asset value (NAV) and the next day’s opening market price will be approximately ten times higher for the fund shares.
Noah Hamman, CEO of AdvisorShares said, “We are reverse splitting due to the low price of the net asset value. When an ETF price gets too low, it can be more difficult and expensive to trade. For PSIL, the fund has such a small amount of assets, we have to subsidize the cost of the fund (literally pay some of the expenses of the fund out of our own pocket).”
The year-to-date return of PSIL is -42% and the one-year performance is -54%. Despite the promise of psychedelic drugs for a variety of mental health issues, the financial payoff of these investments is likely years away. In addition to the long-term horizon of these investments, the recent decision by the FDA to reject the Lykos Therapeutics application for MDMA tampered expectations.
Yet, even before the FDA decision, many psychedelic drug companies were finding that their runway was longer than their bank accounts would allow. Despite raising millions, many companies told investors that they might run out of money before they could deliver any revenue-producing products. That has caused many stock valuations in the sector to tumble.
Earlier this year. Horizons ETF Management announced it was closing its Psychedelic Stock Index ETF. The company liquidated the ETF and gave investors back some money, which in hindsight, looks like pretty decent timing. Before that, Elemental Advisors launched its psychedelic ETF in 2022 and then promptly closed in March 2023.
Hamman added, “If the NAV were to continue to decline, we would consider another reverse split. The low NAV isn’t really a consideration for closing the ETF, however, assets in the fund are a consideration. While PSIL does have a small enough AUM level to close, it remains the only ETF in the market with its focus on psychedelics and mental health, and we’re working as hard as we can, and to continue to invest the costs of keeping it open with the expectation that more investors over time will look to invest in this emerging and beneficial industry.”