On October 2, Bloomberg reported BNY (Bank of New York) Mellon’s new policy update on cannabis trading. From now on, the bank won’t trade with marijuana-related stocks in the US from November 30. However, the bank will trade with companies that aren’t violating the US Controlled Substances Act. This policy update seems to be the result of marijuana being a Schedule I drug at the federal level.
Cannabis trading restricted
Canadian cannabis companies Aphria and Organigram Holdings currently do not operate in the US. Hence, the securities of these companies will most likely be not affected by this rule change. However, BNY Mellon may not trade with companies like Acreage Holdings, Canopy Growth, Tilray, and Green Thumb Industries. Also, the bank may not trade with MedMen Enterprises, Trulieve Cannabis, and Curaleaf Holdings.
While the fate of some companies seems sealed, Aurora Cannabis (ACB) seems to be falling in a grey zone. The company doesn’t have direct operations in the US. However, it holds warrants in Australis Capital, a company in the US marijuana market. But, Aurora Cannabis doesn’t hold any direct ownership in Australis Capital. So, the bank may consider warrants as an indirect way into the US marijuana market.
It is possible that other banks will follow in BNY Mellon’s footsteps. This may severely shrink funding sources for marijuana players in the US. Plus, cannabis companies may need to scale back their expansion plans. This policy may put them at a disadvantage to their Canadian peers. This is especially true considering the opportunities that will open up after Cannabis 2.0 comes into effect. To know more about the Cannabis 2.0 law, read Cannabis 2.0 Legalization: Canada Is Ready.
Cannabis sector still under pressure
BNY Mellon’s exit on cannabis trading is a big hit to the sector. This is especially true considering the unprecedented volatility in the sector. Also, politicians have been more vocal about marijuana legalization ahead of the 2020 US presidential election. However, the debate has worsened as regulators and consumers slowly become aware of potential vaping risks.
Information about the benefits and risks of marijuana has been flooding the market. In this backdrop, the political tensions and growing regulatory scrutiny have been pushing down cannabis stocks in the past few months. To know more about the opinions of presidential candidates about allowing legal marijuana, please refer to President Trump: Is Marijuana Legalization a Key Weapon?
Cannabis trading ETF backed by BNY Mellon
On April 7, Bloomberg said that major Canadian banks preferred to avoid US marijuana companies. Major banks like Bank of Montreal and Toronto-Dominion Bank highlighted the need for federal legalization for improving funding access for these companies. BNY Mellon’s recent trading restriction also follows the same rationale.
On April 23, CNBC reported the launch of BNY Mellon-backed marijuana-focused ETF (exchange-traded fund), AdvisorShares Pure Cannabis ETF. The fund is invested in 30 different cannabis-based stocks. Few of these companies have a big presence in the US market. However, under this new policy, it is unclear how BNY Mellon will act as a custodian for this ETF.
The upside for cannabis companies in the US
There have been a few positive developments in the US cannabis sector. On September 25, the US House of Representatives voted for the SAFE (Secure and Fair Enforcement) Banking Act. This bill will provide the US cannabis industry access to banking and financial services.
However, to become a law, the bill will need approval in the Senate. This is challenging because Republicans are often not in favor of legal marijuana. To know more about the SAFE Act, please refer to Marijuana Legalization: House Passes SAFE Act in the US
On October 3, payments processor Square announced the CBD early-access program. This program will provide payment processing services to US CBD-producing businesses. However, Square will limit its services only for products that are in line with the Farm Bill. To know more about the Farm Bill, please refer to Farm Bill Clears the Way for Cannabis Companies.