JPMorgan EXCLUSIVE to Restrict Trading in Certain US Cannabis Stocks – Letter


Exterior view of the headquarters of JP Morgan Chase & Co. in New York City on May 20, 2015. REUTERS / Mike Segar / File Photo

Nov. 2 (Reuters) – JPMorgan Chase & Co (JPM.N) told its clients of the prime broker it would no longer let them buy certain U.S. cannabis-related securities from Nov. 8, according to a letter seen by Reuters.

The move follows similar actions by other banks, including Credit Suisse, after the high-profile collapse of private fund Archegos Capital this year, which left several banks bearing the brunt of losses.

The saga has caught the attention of regulators and has prompted Wall Street banks to consider the level of risk they are willing to take in their blue chip brokerage businesses.

While many states have legalized the medical or recreational use of cannabis, the substance remains illegal under US federal law, making it risky for banks to deal with cannabis-related businesses.

“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 companies related to marijuana,” the bank wrote to clients.

From November 8, the bank will not allow new purchases or short positions in related businesses, but clients with existing positions will be allowed to liquidate them, he said.

The restrictions apply to companies with operations in the United States that are not listed on the Nasdaq, the New York Stock Exchange or the Toronto Stock Exchange and that have a “direct connection to activities related to marijuana”.

The Nasdaq and NYSE allow certain cannabis-related companies – including Canadian companies that do not sell cannabis in the United States – to list their shares, but will not list companies involved in the cultivation or direct sale of the plant. of marijuana.

However, these companies have always found workarounds for trading on over-the-counter exchanges.

Cowen and Co, another U.S. bank active in the cannabis business, in September increased its cash margin requirements for all marijuana-related transactions on its platform, according to a letter it sent to clients.

A representative for Cowen did not immediately respond to a request for comment.

Some investors have blamed the recent massive sell-offs of U.S. cannabis stocks on the withdrawal of banks from the sector and the new restrictions by JPMorgan and Cowen could add to the pressure.

The MSOS exchange-traded fund, which tracks U.S. marijuana stocks, has halved since peaking in February.

Reporting by Shariq Khan in Bengaluru and Matt Scuffham in New York Editing by Jonathan Oatis and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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