JPMorgan plans to restrict trading in some US cannabis stocks
Substance still illegal under US federal law

JPMorgan Chase & Co (JPM.N) has announced to its prime brokerage clients that as of November 8, they will no longer be able to purchase certain US cannabis-related securities, according to a letter viewed by Reuters.
The move follows similar moves by other banks, including Credit Suisse, after the much-publicized collapse of private fund Archegos Capital left several banks at a loss this year.
History has caught regulators and led banks across Wall Street to review how much risk they are willing to take in their prime brokerage business.
While many states have legalized the medicinal or recreational use of cannabis, the substance remains illegal under US federal law, making it risky for banks to deal with cannabis-related companies.
"J.P. Morgan (JPMS) has put in place a framework aimed at complying with US money laundering laws and regulations by restricting certain activities in the securities of U.S. marijuana related businesses," the bank wrote to its clients.
As of November 8, the bank will not allow any new purchases or short positions in these companies, but customers with existing positions will be able to liquidate them, the bank said.
The restrictions apply to US-based companies that are not listed on the Nasdaq, New York Stock Exchange, or Toronto Stock Exchange and are "directly related to marijuana-related activities."
The Nasdaq and NYSE allow certain cannabis-related companies - including Canadian companies that do not sell cannabis in the United States - to list their stocks, but they will not list companies involved in the direct cultivation or sale of the marijuana plant involved.
However, such companies have still found workarounds to trade on the over-the-counter exchanges.
Cowen and Co, another US bank active in the cannabis trade, increased the margin requirements for all marijuana trafficking transactions on its platform in September, as it announced in a letter to its customers.
A Cowen representative did not immediately respond to a request for comment.
Some investors have attributed the recent US cannabis stock sell-offs to banks pulling out of the sector, and the new restrictions on JPMorgan and Cowen could add to the pressure.
Exchange-traded fund MSOS, which tracks US marijuana stocks, has halved its value since its high in February.

