Credit Suisse Group (NYSE:CS) (SWX:CSG) has reportedly halted custodian services for certain U.S. cannabis stocks. Sources told Reuters that the Swiss investment bank and lender told customers that it wouldn’t execute transactions in cannabis stocks with U.S. operations or hold them on behalf of clients.
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Credit Suisse pulls the plug on cannabis stocks
A cannabis company executive and other industry sources informed Reuters of the development. The Swiss bank was one of just a handful of banks that were previously willing to sell and buy cannabis stocks for U.S. clients and hold them as a custodian.
Marijuana is still illegal at the federal level in the U.S., although many states have legalized the drug. However, its federal status presents a legal risk for investment banks working with cannabis companies.
Reuters notes that analysts and investors have started to scrutinize Credit Suisse's compliance and risk management procedures since it lost at least $4.7 billion in the collapse of Archegos and the suspension of funds linked to Greensill, an insolvent supply chain finance firm.
The AdvisorShares Pure U.S. Cannabis exchange-traded fund (NYSEARCA:MSOS) tracks cannabis stocks in the U.S., and it is down more than 20% since early February. According to Reuters, several players in the market believe Credit Suisse's move to halt custodianship of cannabis stocks has played a role in the selloff. When the firm stopped offering custodian services for marijuana names, many large investors lost their ability to custodian the stocks.
Custodian banks hold customers' securities to protect them from theft or loss. They also collect dividends and take care of other corporate actions. Custodian banks play an essential role in enabling many investors to buy and hold stocks.
The selloff continues across numerous cannabis stocks. Tilray Inc (TSE:TLRY) declined more than 5% after its merger with Aphria closed this week, while Aurora Cannabis Inc (NYSE:ACB) fell by about 2%. Canopy Growth Corp (NASDAQ:CGC) fell more than 3%, while Cronos Group Inc (NASDAQ:CRON) was also down more than 3%.
However, Curaleaf Holdings Inc (OTCMKTS:CURLF) was up 1% in early trading, while Cresco Labs Inc (OTCMKTS:CRLBF) was up almost 1%. Green Thumb Industries Inc (OTCMKTS:GTBIF) was also up by almost 1%.
