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.”

It could be rescheduling hopes or just more optimism in general, but it seems investors are warming up to cannabis again. In just the past couple of weeks, more companies have announced huge private placements and increased offerings. Is this an early sign of green shoots from credit markets?

One example: On July 18, Jones Soda Co. (CSE: JSDA, QTCQB: JSDA) upsized its private placement twice to satisfy the thirst for the stock. What began as a $3 million offering, got bumped up to $4 million and then again to $5 million.

“Based on strong demand, we are pleased to increase the size of the private placement to allow more interested parties the opportunity to participate,” CEO David Knight said just a week ago.

Jones said that its focus in 2024 was sales growth with plans to expand the Jones Soda glass bottle business in existing and new sales channels, expand the fountain program in the United States and Canada, and grow the Mary Jones brand, which includes tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products.

Other recent deals

Also this week, Willow Biosciences Inc.(TSX: WLLW) (OTCQB: CANSF) closed its previously announced brokered private placement offering of 16,397,365 units at a price of $0.10 per unit for aggregate gross proceeds of $1,639,736.50. Dr. Chris Savile, president and chief executive officer of Willow said, “The proceeds provide the company with the funds needed to continue execution of our programs and partnerships through to commercial realization that are anticipated in 2024 and into 2025”.

Not wanting to be left out of the party, Avant Brands Inc. (TSX: AVNT)(OTCQX: AVTBF) announced the terms of a proposed non-brokered private placement of unsecured convertible debenture units at a price of $1,000 per convertible debenture unit for gross proceeds of up to C$3.9 million. That follows a C$2.39 million private placement closed on June 3, according to regulatory filings. The company also restructured some debt during the quarter, including extending a convertible debenture’s maturity.

Ascend Wellness Holdings Inc. (CSE: AAWH-U.CN) (OTCQX: AAWH) closed its previously announced private placement of $235 million of 12.75% senior secured notes due in 2029. The company used the net proceeds of the notes, together with cash on hand, to prepay $215 million of principal amounts outstanding under its existing term loan.

“Ascend’s successful refinancing signals an opening of the credit markets, and we expect other solid MSOs to follow suit,” Viridian Capital Advisors’ analysts wrote. “In particular, GTI has a $275 million term loan maturing on 4/25, and we expect the company to take action to refinance that relatively soon.”

Not a minute too soon

Viridian also found that capital fundraising activity in the marijuana and psychedelics industries had dropped by almost 40% in the last year. By sheer dollar amount, fundraising is down nearly 50%.

As the comment period for rescheduling cannabis from a Schedule 1 drug under the Controlled Substances Act to a Schedule 3 drug draws to a close, interest in the space looks to be growing again. The price of the AdvisorShares Pure U.S. Cannabis ETF has risen from a recent low of $6.98 to sell lately at $7.70.

On Monday, Water Tower Research analyst Jesse Redmond wrote, “It was a good week for cannabis stocks, with the US cannabis MSOS ETF gaining 6.15% and global YOLO increasing 5.15%. The Cannabist (OTCQX: CBSTF) +16.67% was the biggest winner among the larger MSOs, while MariMed (OTCQX: MRMD) -10.53% lost the most.”