BNY has quietly started working with a marijuana ETF - and it's about to be the first major bank to help the world's largest funds invest in the booming industry
- BNY Mellon is serving as a custodian bank for a new, actively managed marijuana ETF that trades under the ticker 'YOLO,' the bank confirmed to Business Insider.
- The bank's move could solve one of the biggest points for institutional investors that want to invest in cannabis but previously couldn't due to the US federal government's stance on the drug.
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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. Launched last week, the actively managed fund 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."
Though 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 like BNY hold stock and settles 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, like 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 fears of losing their federal charter.
Marijuana is legal in some form in 33 states and in Canada, while 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 world's 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 mid-size 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 like Fidelity, JP Morgan, and BlackRock and Canadian Securities Exchange-listed US marijuana companies like Curaleaf and Green Thumb Industries.