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Bank Of New York Mellon’s Restriction Of Cannabis Stocks And Its Effect On The Market

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Major American financial institution Bank of New York Mellon has recently announced its new restrictive policy on cannabis stocks. The bank will no longer accept positions with marijuana-related businesses, as the drug is federally illegal, classed as a Schedule I drug.

CANNABIS STOCK - EFFECT MARKET-1

Major American financial institution Bank of New York Mellon has recently announced its new restrictive policy on the trading of cannabis stocks.

BNY Mellon’s brokerage custody firm Pershing describes the move as an exercise of the bank’s right to ‘reject any deposit regardless of the price or market’. Industry leader Canopy Growth Corporation (TSE: WEED) have beared the brunt, with the stock falling nearly 35% since the announcement (compared to 2.15% growth of the market as a whole).

The announcement has appeared to have flowed through to the Australian market, with two of the Australia’s largest cannabis stocks (by market capitalisation) significantly down. Elixinol Global (ASX: EXL) and Althea Group Holdings (ASX: AGH) are down 51.8% and 29% respectively, since BNY Mellon’s announcement. This comes a disappointment to cannabis investors who saw strong growth through FY19 of 125% and 100% from the aforementioned two stocks.

However, the future of the marijuana industry looks optimistic after the U.S. House of Representatives voted in favour of the Secure and Fair Enforcement Banking Act (SAFE Act). Although, it remains unclear how the bill might fare in the Senate, and against President Trump’s signage, the passage of the Act would allow financial institutions to add state legal cannabis firms as customers without fear of federal reprisal. The bill is expected to face the Senate Committee in late 2019 according to Senate Banking Chair Mike Crapo, and is supposedly “gaining momentum”.

The best time to invest in the Australian marijuana industry may be now, given the combination of the looming externality of the SAFE Act, and the fact that most major cannabis stocks are near, or at, all-time lows, falling dramatically so far in FY20.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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