First Psychedelics-Focused ETF Launches

The new fund from Defiance targets companies operating in the medical marijuana and psychedelics space. 

Today, Defiance ETFs rolled out the first U.S.-listed ETF to focus on psychedelics. The Defiance Next Gen Altered Experience ETF (PSY) focuses on companies legally operating in the medical field with business activities around marijuana, psychedelics and ketamine.

PSY comes with an expense ratio of 0.75% and lists on the NYSE Arca.

Defiance CEO Paul Dellaquila notes that mental health issues in the United States, like depression, spiked dramatically during the pandemic. At the same time, he points out that over the last decade, large pharmaceutical companies have decreased the resources they devote to developing treatments by 70%.

A research paper published by Defiance asserts that 30% of depression patients do not respond to any approved treatments, even as the number of diagnosed cases continues to rise. It goes on to note that multiple studies have found benefits from using psychedelics, especially psilocybin, to alleviate depression and anxiety, including some that saw results that far exceeded those achieved by existing approved treatments.

“There’s a unique benefit to it, medically,” said Dellquila. “I think the investment case is strong too—even just from a human aspect, I think there’s a lot of potential here.”

Methodology

PSY tracks the BITA Medical Psychedelics, Cannabis, and Ketamine Index, a benchmark with 21 constituents listed in North America and selected for their exposure to the targeted business areas. Companies included in the index must generate at least half of their revenue from the production of, the distribution of and services related to medical psychedelics, medical cannabis or ketamine, according to the prospectus.

Psychedelics, which can include psilocybin, and ketamine, in particular, are being studied as potential treatments for a variety of mental health issues like depression, addiction, anxiety and post-traumatic stress disorder, the document says.

Dellaquila emphasizes that the fund is focused exclusively on legally operating companies with a medicinal focus on psychedelics, marijuana and ketamine rather than a recreational focus.

Eligible companies must meet size and liquidity requirements, with the index rebalanced and reconstituted twice a year. Within the index, securities weighted using a modified market capitalization approach that limits the individual weights of the holdings, the prospectus says.

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The top holdings for the fund at launch include Charlottes Web, Aurora Cannabis and Corbus Pharmaceuticals, but the portfolio also includes names like Mind Medicine and Compass Pathways, which are both considered pioneers in the psychedelics space. PSY is focused on pure plays, but Dellaquila notes that some very large names also operate in the space, with both Johnson & Johnson and AbbVie having brought to market ketamine-based treatments in recent years.

Contact Heather Bell at [email protected]