A major Wall Street bank updated its policy on cannabis stocks this week to stop accepting positions or trading with U.S. marijuana-related businesses, a sign that some U.S. financial institutions are becoming uncomfortable dealing with the drug that remains federally illegal in the U.S.

Bank of New York Mellon Corp., one of the biggest custodian banks in the world with US$35.5 trillion in assets under custody or administration, sent its clients an update on its cannabis securities policy on Monday. The bank said it would no longer accept incoming positions, or trading of non-permitted cannabis-related securities effective Nov. 30 as marijuana remains listed as a Schedule I drug.

However, the policy appears to allow Canadian cannabis companies that don’t operate in the U.S. to be traded by the bank as they would not violate the U.S. Controlled Substances Act, BNY Mellon said. Pot companies that have U.S. operations, such as Acreage Holdings Inc. and Curaleaf Holdings Inc., would be restricted for trading under BNY Mellon’s new policy, but firms such as Aphria Inc. or Organigram Holdings Inc. would still be tradable.

“In general, any company that manufactures, processes or distributes cannabis within the U.S., regardless of whether the business resides in a U.S. state or another country where cannabis is legal, would violate U.S. federal law … unless approved by the [U.S. Drug Enforcement Administration] for medical use,” the bank said in its note to clients obtained by BNN Bloomberg.

A spokesperson from BNY Mellon declined to immediately comment on the company’s cannabis trading policy.

The move by a major U.S. bank to restrict any trading in cannabis businesses may have a significant impact on the sector. While investors cheered cannabis-related companies a year ago amid a $5 billion investment from Constellation Brands Inc. in Canopy Growth Corp., their fortunes have fallen since then. A shaky roll-out of the legal cannabis industry in Canada and a fragmented U.S. market where marijuana remains federally illegal has sent trading in many publicly-listed firms to yearly lows.

BNY Mellon said it reserves the right to reject any trading or deposits in cannabis-related banks until Nov. 30 and encourages its clients not to do so by that date. After Nov. 30, the bank will no longer execute or clear new transactions in pot-related securities – or hold those securities in its role as a custodian bank – unless a client wishes to liquidate their positions in the companies under a grandfathered clause.

“BNY Mellon continues to monitor trends in [cannabis-related business] transactions and may impose additional restrictions or require additional information in the future. BNY Mellon’s Pershing also has the right to reject any deposit, regardless of the price or market,” the bank added. BNY Pershing is the bank’s brokerage custody firm which provides services to  advisors, asset managers, broker-dealers and other firms.

BNY Mellon’s decision comes on the heels of the U.S. House of Representatives voting in favour of the SAFE Act, a bill that would allow U.S. financial institutions to conduct banking and insurance activities with cannabis-related banks. The legislation now heads to the U.S. Senate for deliberation and a vote, which some analysts expect could become law later next year.

While some smaller U.S. financial institutions have taken cannabis clients for investment banking and financing related activities, most larger firms remain on the sidelines. Some, however, such as Cowen & Co. and Bank of America Merrill Lynch have begun offering equity research on Canadian pot companies while Goldman Sachs and Bank of America took part in Constellation Brands’ investment in Canopy.

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