Although medicinal cannabis was effectively legalised in the UK in 2018 by the government amending the cannabis-based products for medicinal use (CBPM) classification, there have continued to be concerns about the risk of technically committing money-laundering offences under the Proceeds of Crime Act 2002 (POCA) by investing in cannabis-related companies.

Money-laundering offences under POCA will occur if a person acquires, deals with, or arranges for another person to acquire or deal with, property that the person knows or suspects constitutes "criminal property". Under POCA, cannabis-derived revenues are treated as 'criminal property' if they derive from underlying activity that is technically illegal under the Misuse of Drugs Act 1971, if it were carried out in the UK. The breadth of these provisions means that cannabis-related businesses with overseas activities risk being caught by POCA if the activities are illegal in the UK even if they are legal and appropriately licensed in another country.

The latest statement from the FCA confirms that it will approach the listing of cannabis-related businesses as follows:

  • Recreational cannabis companies: The proceeds from these companies, even when they are located in those jurisdictions that have legalised it, are proceeds of crime under POCA. The FCA will therefore not approve the listing of such a business to the Official List.
  • UK-based medicinal cannabis companies: The legal position of purely UK-based medicinal cannabis companies and cannabis oil companies is clear. These companies can be admitted to the Official List if the company has the appropriate Home Office licences for its activities where they are required.
  • Overseas-licensed medicinal companies: These companies are in a different position from purely UK-based medicinal cannabis companies. Overseas-licensed medicinal cannabis companies and cannabis oil companies may be admitted to the Official List, provided the FCA is satisfied that POCA does not apply and the company otherwise satisfies the criteria for listing. As part of the vetting process, the FCA will carry out a review of the proposed issuer where it will need to satisfy the FCA as to the risk of contravening POCA. The company will need to satisfy the FCA that its activities would be legal if carried out in the UK. The FCA will also need to understand the legal basis of the company's overseas activities, for example, the nature of the local licensing and the licences the company holds.

It is important to note that the latest statement from the FCA is pending a future consultation on further guidance, which will follow in due course.

Comment

Until this statement from the FCA, there had effectively been a moratorium on the listing of any medicinal cannabis company on the Official List whilst the FCA undertook a review of its policy towards the cannabis sector. This has created uncertainty in the UK equity markets, as there was a lack of a consistent approach by different UK stock markets.

This clarification from the FCA is therefore welcome and provides some much-needed clarity for licensed medicinal cannabis and cannabis oil companies that may be considering listing on the Main Market. This should open the door for new pre-IPO and IPO capital raising and investment opportunities in the medicinal cannabis sector and we look forward to seeing the first medicinal cannabis company listing on a major UK stock exchange.

There is currently no specific guidance from the London Stock Exchange in relation to the AIM market, however, it is hoped that AIM will also follow the approach of the FCA when considering applications from UK and non-UK medicinal cannabis and cannabis oil companies.

However, the FCA statement highlights that investment in cannabis-related businesses - especially those with overseas activities - requires a careful analysis of local law applicable to the business as well as any extraterritorial effect of POCA. In addition, the FCA statement does not expressly address CBD/wellness activities which are, by their nature, non-medicinal and therefore governed by a different regime from CBPM (read an overview of recent developments in this market). However, the FCA statement may also open the door to discussions about listing appropriately authorised CBD/wellness companies although this may be a subject for any future guidance from the FCA. Hill Dickinson's market-leading medical cannabis practice is ideally positioned to advise clients on these complex issues.

The firm's expertise in corporate law (including capital markets), life sciences, regulatory matters, commodities, international trade and healthcare law uniquely positions the firm to advise established and start-up medical cannabis and CBD/wellness companies in the UK and Europe on regulation, licensing, research, manufacturing, distribution, capital raising, M&A and joint venture transactions.

The firm has been actively involved in this sector since advising FastForward Innovations Limited (AIM:FFWD) in 2017 on the first medical cannabis investment by a UK-listed company since GW Pharma and subsequently advising on the listing of Sativa Group plc on the AQSE, the first listing of a medical cannabis-focused company in the UK since 1998. Since then we have advised a number of larger established North American integrated companies, as well as UK and European focused start-ups and joint ventures, and regulated institutions on a range of matters, including mandates for EMMAC Life Sciences, Nobl, Lyphe and Sapphire Medical Clinics. We are currently advising Sativa Group plc on its recommended takeover by StillCanna Inc.

View further information about our services for the medicinal cannabis industry.

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