Credit Suisse stops custodian service for some U.S. cannabis stocks-sources

Cresco Labs

05/05/2021 20:46

(Adds details, background)
    By Shariq Khan and Matt Scuffham
    May 5 (Reuters) - Credit Suisse Group AG  CSGN.S  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.
    The Swiss lender was among a handful of banks that had been
willing to buy and sell marijuana-related stocks for clients in
the United States and hold those shares as a custodian.
    Credit Suisse declined to comment.
    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  MSOS.N , 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  AAWHu.CD .
    "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.
    The weed industry has boomed over the last three years, as
Canada and a succession of U.S. states, including most recently
New York and New Jersey, legalized recreational use.
    Credit Suisse shares are down over 20% so far this year, and
the bank has said it is cutting its prime brokerage business,
which caters to hedge fund clients, by about a third.

 (Reporting by Shariq Khan and Matt Scuffham; Writing by Patrick
Graham; Editing by Howard Goller)
 ((patrick.graham@thomsonreuters.com; +44 207 542 9429))