BNY Mellon is working to solve one of the biggest pain points for institutional investors that want to put money to work in the cannabis industry.
The New York-based bank is providing custodial services to a new marijuana exchange-traded fund (ETF) called the AdvisorShares Pure Cannabis ETF. The actively managed fund, which was launched last week, will trade under the ticker YOLO.
A spokesperson for BNY confirmed to Business Insider that the bank was working with the ETF and said that it met "our internal governance requirements."
Although YOLO isn't the first marijuana ETF, it's the first New York Stock Exchange-listed marijuana fund that's backed by a major custodian bank.
That could pave the way for the biggest financial institutions, like the BlackRocks of the world, to invest in cannabis stocks.
What does a custodian bank do?
Custodian banks such as BNY hold stock and settle trades for funds that invest in publicly traded stocks. Think of them like the plumbing that allows investors to safely buy stock in public companies — they're crucial middlemen between asset managers and publicly traded companies.
Other marijuana ETFs, such as ETF Managers Group's ETFMG Alternative Harvest, have previously been forced to use smaller broker dealers like Wedbush Securities to hold stocks because major custodian banks wouldn't work with cannabis companies over fear of losing their federal charter.
Marijuana is legal in some form in 33 states and in Canada, but it is considered an illegal Schedule I drug by the US federal government.
That difference has made some institutional investors wary about investing in the industry. BlackRock President Rob Kapito said at a Toronto conference last year that the largest asset manager "will be getting in" to the cannabis industry once custodians are able to clear cannabis stocks.
Two of the other biggest custodian banks, State Street and Northern Trust, declined to comment.
Canaccord Genuity, a midsize Canadian investment bank, is also seeking approval from the Financial Industry Regulatory Authority (FINRA) to act as a custodian for US investors, Business Insider previously reported.
Cannabis-industry sources speculate that the bank, which is already actively working with cannabis companies, will use FINRA approval to act as a middleman between big asset managers such as Fidelity, JPMorgan, and BlackRock and Canadian Securities Exchange-listed US marijuana companies such as Curaleaf and Green Thumb Industries.
- Read more:
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- A California company tested 20 popular CBD products and found 'insanely high levels' of dangerous chemicals and misleading labels
- Top cannabis CEOs say Canopy Growth's $3.4 billion purchase of pot cultivator Acreage 'shakes the foundation of what has been true' and will spur a cannabis M&A boom
- Citigroup is considering working with pot companies as banks figure out ways to chase a $75 billion market
