- JPMorgan told clients they would not be allowed to buy U.S. cannabis stocks, Reuters reported on Tuesday.
- The bank introduced a framework to comply with US money laundering laws by restricting trade.
- An ETF that tracks U.S. marijuana stocks has fallen more than 50% since its peak in February.
JPMorgan, the largest US bank by assets, will no longer allow its prime brokerage clients to trade cannabis-related US stocks as of Monday, Reuters reported.
While its northern neighbor, Canada, legalized cannabis nationally in 2018, the United States has not followed suit. This has forced states to chart their own course, and only 18 states and Washington, DC have legalized drugs for recreational or medical use by adults over 21.
But for now, cannabis is considered an illegal Schedule I drug by the US government. This puts companies that face it at high risk.
“JP Morgan (JPMS) introduced a framework designed to comply with US money laundering laws and regulations by restricting certain activity in the securities of US marijuana-related companies,” the bank said in a letter to clients consulted by Reuters.
New purchases or short positions in related companies will be blocked from November 8, but clients with existing positions will be allowed to liquidate them, the letter said.
With the move, JPMorgan takes a similar approach to Credit Suisse, which told clients in May that it was no longer willing to be the custodian of shares in cannabis-related companies with operations in the United States. The Swiss lender was facing losses from the forced liquidation of Archegos at the time.
JPMorgan’s restriction covers companies with operations in the United States and a “direct connection to marijuana-related activities” that are not listed on the Nasdaq, the New York Stock Exchange or the Toronto Stock Exchange.
The Nasdaq and the NYSE have agreed to list shares in certain cannabis-related companies, including some companies based in Canada without a sales transaction in the United States. However, they are drawing a line with companies directly involved in growing or selling marijuana, according to Reuters.
Despite this, some companies have managed to find loopholes to trade over-the-counter or without the supervision of a stock exchange.
The AdvisorShares Pure US Cannabis ETF, which tracks US marijuana stocks, has fallen 26% so far this year and is down more than 50% since its peak in February, according to data from TradingView .
JPMorgan did not immediately respond to Insider’s request for comment.
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