Read the full letter JPMorgan sent to clients about restricting investments or trades in US cannabis stocks - Read of Green
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Read the full letter JPMorgan sent to clients about restricting investments or trades in US cannabis stocks

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  • JP Morgan will no longer let clients trade US cannabis stocks, according to a letter sent to clients.
  • The bank will only allow clients to liquidate their positions.

JPMorgan will no longer let clients buy shares in or short US cannabis stocks starting November 8, according to a letter sent to clients that was viewed by Insider.

The bank also will no longer serve as a custodian for prime brokerage clients who want to buy these stocks. The bank will only allow clients to liquidate their positions, the letter said. JPMorgan’s move pertains only to US cannabis stocks listed on secondary exchanges like the Canadian Securities Exchange and the NEO Exchange. It does not pertain to cannabis stocks listed on the NYSE, Nasdaq, or TSX — most of which are domiciled in Canada, where cannabis is federally legal. 

The letter was circulated around Twitter and shared with Insider. Reuters first reported on a different version of the letter, as well as cannabis investor Todd Harrison’s Substack. A spokesperson for JPMorgan confirmed that the letter was sent firmwide to clients, and said that Reuters had a version of the letter that was worded specifically for prime brokerage clients. 

JPMorgan’s decision follows a similar one by Credit Suisse, which told clients it would stop serving as a custodian for US cannabis stocks in May. Those moves come after BNY Mellon’s Pershing, the bank’s custodian division, told clients it would restrict buying or trading US cannabis stocks in 2019. 

Cannabis is federally illegal in the US though a number of states have legalized it for both medical and recreational use.

Kim Rivers, CEO of Florida cannabis company Trulieve, told Insider that JPMorgan’s recent decision “illustrates how financial institutions and lawmakers are still operating under misguided and dated perceptions of the cannabis industry” and added that the bank’s position doesn’t fully consider the economic potential of this rapidly maturing industry.

Trulieve is one of the biggest cannabis companies in the US and operates in 11 states.

“We view this latest challenge as an opportunity to engage with more members of the financial community, and call on Congress to finally pass the SAFE Banking Act,” Rivers said. “This bipartisan bill will not only make it easier for regulators to work with legal businesses, but also bridge the existing chasm between banking institutions and cannabis industry stakeholders.” 

Lawmakers on Capitol Hill are working on legislation that would protect banks that do choose to work with the cannabis industry, but nothing has landed on President Biden’s desk as of yet.

Shares of US cannabis stocks have been on a precipitous slide this year. MSOS, an ETF that tracks a basket of US cannabis stocks peaked at over $55 per share on February 10. On November 3, shares were trading around $27, a 50% drop.

Steve Hawkins, the president of the US Cannabis Council, an industry trade group, said in a statement that JP Morgan is “on the wrong side of history” and will come to “regret this decision.”

“JPMorgan’s move to block its customers from buying securities in fully legal, regulated cannabis companies is beyond disappointing. Publicly-traded cannabis companies operate entirely within the law, and the industry is poised for tremendous growth,” he said.

Here’s the full text of the letter, as seen by Insider:

“On the basis of current laws in the applicable jurisdictions, J.P. Morgan has recently adopted new policies around marihuana-related businesses. Effective November 8th, 2021 the firm will prohibit new deposits, purchases (open market and private offerings), and short sales of US-based cannabis companies except for those listed on the NYSE/NASDAQ/TSX. Only liquidating trades of existing positions previously purchased on the open market will be permitted. It is important to note that J.P. Morgan will open additional securities accounts (and linked restricted cash accounts) to segregate these securities from other client assets. On November 8, 2021, any remaining holdings of such securities will be migrated to these accounts by J.P. Morgan. Additionally, J.P. Morgan will not support voluntary corporate action events for these securities that remain in its custody. Mandatory events or default options for asset servicing will be supported, but any resultant cash proceeds will be restricted.”

Source: Business Insider

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