Credit Suisse stops custodian service for some U.S. cannabis stocks
By Shariq Khan and Matt Scuffham
(Reuters) – Credit Suisse Group AG has told customers in recent months it will no longer execute transactions in shares of cannabis companies with U.S. operations or hold them on behalf of clients, a cannabis company executive and other industry sources told Reuters on Wednesday.
Cannabis remains illegal under U.S. federal law, even though many states have legalized its use. This represents a legal risk for investment banks working for companies that produce or trade the drug.
Credit Suisse’s compliance and risk management procedures have come under scrutiny from investors and analysts after it lost at least $4.7 billion from the collapse of Archegos, an investment firm dedicated to managing the fortune of hedge fund veteran Bill Hwang, as well as the suspension of funds linked to insolvent supply chain finance company Greensill.
The MSOS exchange-traded fund, which tracks U.S. marijuana stocks, has fallen by more than a fifth since early February. Several market players said they believed Credit Suisse’s actions played a role in the selloff.
“(When) Credit Suisse pulled custodian (services) on cannabis stocks, a number of large investors in the space lost their ability to custodian the stocks,” said Abner Kurtin, Chief Executive Officer of newly-floated marijuana grower Ascend Wellness Holdings Inc.
“That led to a significant selloff.”
A custodian bank holds customers’ securities for safekeeping, to prevent them from being stolen or lost, while also collecting dividends and handling other corporate actions. It plays an important role in helping many investors to hold shares in companies.
(Reporting by Shariq Khan and Matt Scuffham; Writing by Patrick Graham; Editing by Howard Goller)