BNY Mellon’s cannabis-limiting move highlights inconsistencies in banking but could help in the long run, sources say

Just as potential marijuana banking progress appears on the horizon at the federal level due to the U.S. House of Representatives’ passage of the SAFE Banking Act, one major bank has stopped clearing a significant chunk of cannabis-related trades.

The move by New York-based BNY Mellon’s Pershing unit immediately dashed some of the optimism from the SAFE Banking progress and saw cannabis company stock prices come under more pressure.

What it certainly does, for now, is show how the current banking system is still causing headaches to cannabis companies and investors.

Many cannabis-related businesses (CRBs) have struggled to find consistent banking solutions as financial institutions, particularly larger ones, shy away because of the federally illegal status of marijuana.

The eventual passage of the SAFE Act – and there’s a question about the measure’s prospects in the U.S. Senate – is seen as major boon to find more sustainable solutions in a more normalized industry.

“There is a lot of irony in (BNY Mellon’s move) after the SAFE Act,” said Danny Moses, adviser at New York-based investment group Merida Capital Partners. “Who is going to step up for that? This is not a sustainable (banking) environment.”

BNY Mellon-owned Pershing is responsible for the clearance of a third of all trades in the United States, Moses added. Clearing banks essentially finalize financial transactions.

BNY Mellon move takes effect in late November

BNY Mellon, which controls roughly $35.5 trillion of assets, issued a notice to clients in early October saying it will no longer accept incoming positions of “non-permitted” cannabis securities, effective Nov. 30.

While the bank did not spell out what it meant exactly by non-permitted securities, the move targets, among others, U.S. cannabis multistate operators (MSOs) trading on the Canadian Securities Exchange, analysts said.

“The changes in our policy were made to put a greater level of specificity around what we define as a Cannabis Related Business (CRB), and what our Permitted Securities policies are for CRBs,” a BNY Mellon spokeswoman wrote in an email to Marijuana Business Daily.

“The goal of this change is to ensure that we maintain the highest standard of AML/KYC (Anti-Money Laundering and Know Your Customer) regulatory compliance in this burgeoning investment space, while continuing to service our clients’ increasingly complex investment needs.”

Opportunities for others; pressure on Senate?

Still, the bank’s move could open up opportunities for other banks and institutions to fill the BNY Mellon gap, analysts say.

At least some cannabis trading business will likely be covered by other banks and institutions because there is enough capacity there, according to Brett Hundley, equities analyst at Virginia-based Seaport Global.

While the bank’s decision could have been taken because of an uncertain political climate, it could also be designed to actually produce pressure on federal lawmakers to push the SAFE Act through the Senate, Hundley said.

The long deadline to Nov. 30 might add fuel to that argument, he said. Such a delay gives stakeholders time to potentially pressure reluctant senators to normalize banking for the industry, he added.

“I could see a scenario where BNY makes this announcement, and more companies and investors phone their senator with complaints, leading to potential movement within the Senate on the SAFE Act,” he said.

BNY Mellon, which declined to comment further, made headlines in April when it said it would act as a custodian bank safeguarding the assets of an exchange-traded fund focused mainly on cannabis stocks.

It was the first time a New York Stock Exchange marijuana-related fund has seen backing by a major bank.

The ETF – known as the AdvisorShares Pure Cannabis ETF – trades on the NYSE as YOLO.

The fund seeks growth opportunities in both U.S. and foreign cannabis businesses, according to its website. The YOLO fund is not affected by the BNY Mellon move, a bank spokeswoman said.

Nick Thomas can be reached at [email protected]

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