J. Lawler Duggan/For The Washington Post via Getty Images
- JPMorgan told customers they won't be allowed to buy some US cannabis stocks, Reuters reported Tuesday.
- The bank introduced a framework aimed at complying with US money laundering laws by restricting trading.
- An ETF that tracks US marijuana stocks has fallen more than 50% since its peak in February.
JPMorgan, the biggest US bank by assets, will no longer allow its prime brokerage clients to trade US stocks linked to cannabis from Monday, Reuters reported.
While its northern neighbor Canada legalized cannabis nationwide in 2018, the US has not followed its lead. That has forced states to chart their own course, and just 18 states and Washington, DC have legalized the drug for recreational or medical use by adults over the age of 21.
But for now, cannabis is considered an illegal Schedule I drug by the US government. This exposes businesses dealing with it to high risk.
"J.P. Morgan (JPMS) has introduced a framework that is designed to comply with US money laundering laws and regulations by restricting certain activities in the securities of US Marijuana Related Businesses," the bank said in a letter to clients seen by Reuters.
New purchases or short positions in related businesses will be blocked from November 8, but clients holding existing positions will be allowed to wind them up, the letter said.
With this move, JPMorgan is taking a similar tack to Credit Suisse, which told clients in May that it was no longer willing to be a custodian of shares in cannabis-related companies with US operations. The Swiss lender was dealing with losses from the forced liquidation of Archegos at the time.
JPMorgan's restriction covers companies with US operations and a "direct nexus to marijuana-related activities" that are not listed on the Nasdaq, the New York Stock Exchange, or the Toronto Stock Exchange.
The Nasdaq and NYSE have agreed to list shares in some cannabis-related companies, including some Canada-based businesses without a sales operation in the US. However, they draw the line at companies involved directly in farming or selling marijuana, according to Reuters.
Even so, some companies have managed to find loopholes to trade over-the-counter, or without the supervision of an 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 didn't immediately respond to Insider's request for comment.