A Swiss company has launched a screening tool to help investors avoid exposure to marijuana-related securities in legally risky jurisdictions.
The Marijuana Related Businesses (MRB) Securities service, produced by financial data firm SIX, which also operates the main Swiss stock exchange, has already identified and listed 30,000 financial instruments worldwide that are either directly or indirectly issued by listed MRB entities.
The thinking behind the tool centers around the complex and ever-changing legal landscape for marijuana worldwide. In the U.S., for instance, marijuana is currently legal in certain states but is still criminal on the federal level.
In some states in the U.S., therefore, marijuana companies are able to raise money via the capital markets, enabling investors to access MRB-listed securities for the first time.
One difficulty for firms hoping to control portfolio exposure to marijuana is that these can span several sectors, including pharmaceutical, recreational, transport and retail. The initial watchlist of 30,000 securities includes any related structured products, options or warrants.
"As MRB becomes increasingly linked to the capital markets, clients have been asking us how to best guard against any risk of portfolio exposure," said Oliver Bodmer, senior product manager at SIX.
"This isn't just from a legal perspective, as ESG becomes more and more prominent in investment strategies, some investors are against their money being used for buying any securities tainted by 'sin' stocks such as alcohol, tobacco and marijuana."
In January 2018, a memo from then-U.S. Attorney General Jeff Sessions reversed Obama administration guidance that mostly protected marijuana-legal states from federal scrutiny.
The Trump administration moved to eradicate guidance issued by former deputy attorney general James Cole in 2013, which instructed U.S. attorneys to focus on drug cartels and cross-border trafficking, rather than marijuana companies complying with state law.
Outside the U.S., MRB's Bodmer highlighted that some European countries also view investing in MRB securities as money laundering, meaning investment firms must be increasingly aware of their exposure to related securities to avoid falling foul of regulators.
For example, U.K. companies and financial institutions could potentially be penalized for entering into commercial transactions with cannabis businesses under the "Proceeds of Crime Act," which applies to U.K. business even if the activity is legal in the country in which the business operates.
A British investment business becoming involved in an arrangement which facilitates the acquisition, retention, use or control of the proceeds of cannabis may therefore be considered a money laundering offence, as it is still largely illegal in Britain.