(Bloomberg) -- The first actively managed pot ETF in the U.S. hasn’t attracted the early inflows of its competitors but is breaking down other barriers for the industry.

As of Thursday, the end of its second week of trading, the AdvisorShares Pure Cannabis ETF (ticker: YOLO) had attracted $42.5 million of assets via eight straight days of inflows. That pales in comparison to the $321 million the ETFMG Alternative Harvest ETF drew in its first couple weeks, when it was the only U.S.-traded pot ETF, but outpaced other funds launched in the last few weeks, according to data compiled by Bloomberg.

YOLO may have done something more important for the cannabis industry than entice investors, however. The pot exchange-traded fund is the first to have a major U.S. bank serve as its custodian. Bank of New York Mellon Corp. has been working with AdvisorShares since 2009 and saw no reason to change that because of its entry into the cannabis space, according to a bank spokesman. Custodians hold stock and settle trades for funds that invest in publicly traded companies.

“We have always considered the needs and interests of our ETF clients across global markets as they evolve, and this is no different,” the spokesman said in an email. “The fund has been reviewed in accordance with our internal governance requirements, and has been deemed to be compliant with those requirements.”

Most big U.S. banks have steered clear of the pot sector as the drug remains illegal federally and they fear allegations of money laundering or that they may lose their federal deposit insurance. BNY Mellon was likely reassured by YOLO’s prospectus, which states it “will only invest in companies that engage in cannabis-related business that is permitted by national and local laws of the relevant jurisdiction, including U.S. federal and state laws.”

The ETF’s top holdings as of May 1 included some U.S. companies but none that touch the plant. For example, Innovative Industrial Properties Inc. leases real estate to the cannabis industry and Cara Therapeutics Inc. is a pharmaceutical company that’s developing cannabinoid-based treatments for pain.

The lack of big banks’ willingness to act as custodians for U.S. cannabis shares has prevented some institutional investors from buying into the sector, according to Steve Ottaway, managing director of investment banking at GMP Securities LP.

This happened during the fundraising ahead of Curaleaf Holdings Inc.’s go-public transaction, which GMP was involved with, he said.

“We had orders coming at us that were as big as the big financings you might see in Canada for the mid-tier guys in a single order, and then they realize their custodian won’t allow them to hold the stock,” Ottaway said in a recent interview in Bloomberg’s Toronto office. “So we watched $80 million orders disappear while we were building the book because of the custodian.”

Curaleaf Chief Executive Officer Joe Lusardi agreed that potential investors are “having prime broker issues, custodian issues” and companies like his are still “trying to figure out how to custody the shares.” Executives at Cresco Labs Inc. and SLANG Worldwide Inc. also confirmed they’ve seen similar issues.

BNY Mellon declined to comment on whether it would consider acting as a custodian for other pot stocks. JPMorgan Chase & Co. and Northern Trust Corp., two other custodian banks, also declined to comment.

And if YOLO breaking ground on custody banks is enough to show attitudes toward the pot business are changing in the U.S., the company also scored another first: it became the first U.S. ETF to include cannabis in its name, according to Bloomberg data.

Upcoming Events This Week

MONDAY 5/6

  • MJBizDaily will host a European Cannabis Symposium in Copenhagen
  • GW Pharmaceuticals Plc releases quarterly results with an earnings call at 4:30 p.m. New York time

TUESDAY 5/7

  • Green Market Report holds a summit in Chicago on the “advanced economic state of cannabis”
  • CannTech hosts what it calls “Silicon Valley’s first major cannabis technology summit” in San Francisco

THURSDAY 5/9

  • The Canadian Club in Toronto hosts “Canadian leadership in medical cannabis,” featuring a panel that includes CannTrust Holdings Inc. CEO Peter Aceto
  • Cronos Group Inc. reports first-quarter results with an earnings call at 8:30 a.m. Toronto time
  • ExpoCannaBiz investing forum followed by a conference and expo through May 11 to be held in Cartagena, Colombia

FRIDAY 5/10

  • Village Farms International Inc. holds its first-quarter analyst call at 11 a.m. Toronto time

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To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jacqueline Thorpe, Steven Frank

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