The ETFMG Alternative Harvest ETF (NYSEArca: MJ), the only dedicated marijuana ETF listed in the U.S., is set to undergo some administrative changes pertaining to the fund’s back-end functions.
In a statement, New Jersey-based ETF Manager Group said U.S. Bancorp is being replaced as MJ’s custodian, administrator and transfer agent. In performing those duties for MJ, U.S. Bancorp held shares of publicly traded cannabis companies, which presented some risks to the bank because marijuana is not legal at the federal level.
Earlier this year, it was reported that U.S. Bancorp was reviewing its custodial relationship with MJ’s issuer. Potential investors should be aware that while MJ’s underlying index may cover businesses that are legally engaged in activities related to cannabis, the benchmark does not include those that directly cultivate, produce or distribute marijuana or products derived from marijuana, unless such activities become legal under U.S. federal and state laws.
Related: Marijuana ETF Boosted by Coca-Cola’s Interest in Weed Drinks
“It’s been a tumultuous few months for the fund, which last year surprised investors when it changed its strategy from buying Latin American real estate to pot growers,” reports Bloomberg. “The ETF quickly gathered hundreds of millions in assets, but was plagued by questions about whether U.S. Bancorp would stick around as custodian, given the potential legal and reputational risks.”
Custodial Duties With ETF Issuers
Custodian banks have some latitude when it comes to ending relationships with ETF issuers.
“Custodians are typically allowed to terminate their contract with an ETF issuer after a notice period of about 90 days, depending on their agreement. Minus a custodian — a legal requirement under the Investment Company Act of 1940 — a fund’s board would be pushed to liquidate the ETF, with shareholders splitting the proceeds,” according to Bloomberg.
California-based broker-dealer Wedbush Securities Inc. will be MJ’s new custodian while ETFMG will act as the fund’s administrator.
For more information on the markets, visit our current affairs category.