Taking risks on new companies is a strategy many investors employ to look for optimal returns, and according to some, the cannabis industry provides just such an opportunity.
The cannabis industry was valued at $9.1 billion in 2020 and is expected to grow to $70.6 billion by 2028, according to Grandview Research.
Marijuana is legal in 33 states for medical and/or adult use, but it’s illegal at the federal level, making it difficult for cannabis businesses to find banking or other financial institutions to serve them.
Brokerage firms also are tightening the rules for which cannabis businesses they’ll serve and which they won’t.
Some Are Bowing Out
Last November, JP Morgan Chase & Co. JPM told its brokerage clients it will no longer allow them to buy stocks in U.S. cannabis companies that have a “direct nexus to marijuana-related activities” and are not listed on the Nasdaq Stock Exchange, the New York Stock Exchange or the Toronto Stock Exchange.
“J.P. Morgan (JPMS) has introduced a framework that is designed to comply with U.S. money laundering laws and regulations by certain activities in the securities of U.S. marijuana-related businesses,” the bank wrote to clients in a letter seen by Reuters.
The Nasdaq and NYSE exchanges allow some cannabis-related companies to list their shares, including Canadian companies that don’t sell marijuana in the United States.
JP Morgan Chase’s move followed Credit Suisse Group AG CS telling customers it would no longer execute transactions in shares of cannabis companies with U.S. operations.
Lack of access to traditional banking services continues to make trading firms leery of handling transactions involving cannabis stocks.
Analysts also tend to shy away from following cannabis stocks, although investment research firm Morningstar covers some cannabis companies in its qualitative analysis program, including Aurora Cannabis Inc. ACB, Canopy Growth Corp. CGC, Tilray Inc. TLRY and Green Thumb Industries Inc. GTBIF.
According to some analysts, access to banking could go a long way toward reducing trading firms’ anxiety about dealing with cannabis stocks, but it doesn’t appear to be changing anytime soon.
The U.S. Senate recently tossed out the Secure and Fair Enforcement (SAFE) Banking Act for the sixth time. The proposal would grant state-legal marijuana businesses access to federally insured banks.
Although cannabis companies’ lack of access to banking makes many trading firms skittish when it comes to cannabis stocks, some companies, such as Chicago-based Gar Wood Securities LLC, say they are helping investors continue to invest and trade in the industry.
Founded in 2004, Gar Wood states that it uses state-of-the-art technologies and trade execution algorithms that ensure its clients get their stock orders filled as quickly as possible while maintaining security and quality in the process.
To learn more about Gar Wood Securities, click here.
This material is not intended as investment advice and is not meant to suggest that any securities are suitable investments for any particular investor. All investments are subject to risk and may lose value. Marijuana is still considered an illegal substance under federal law. Gar Wood Securities does not condone or encourage the use of marijuana or any other illegal substance. Investing in marijuana related investment products is considered high risk and should be done with caution as part of a well-diversified portfolio. For more information regarding Marijuana-Related Investments, see the SEC Investor Alert: https://www.sec.gov/oiea/investor-alerts-bulletins/ia_marijuana.html
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The Benzinga Cannabis Capital Conference is coming to Florida
The Benzinga Cannabis Capital Conference is returning to Florida, in a new venue in Hollywood, on April 16 and 17, 2024. The two-day event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn and grow. Renowned for its trendsetting abilities and influence on the future of cannabis, mark your calendars – this conference is the go-to event of the year for the cannabis world.