Green shoots: recent developments in the legal cannabis industry

Investing legally in the cannabis industry has troubled many UK investors and investment managers over the last couple of years. This is due to the UK Proceeds of Crime Act 2002 (POCA), which still deems the receipt of funds from investments in the legal cannabis industry abroad (in places like Canada) as criminal property. This means that investing in the legal cannabis industry throws up a series of thorny money laundering issues, which we considered in an article in 2019.

One area that has continued to offer some hope for investors is the medicinal cannabis market. However, this has also remained a confusing area that may still trip up well-intentioned investors.

Anyone interested in the legality of investing in this industry and the approach of the UK authorities to it may therefore wish to note two recent developments:

• in December last year, the UK Home Office issued its second only licence to cultivate cannabis for medical use. This both illustrates how narrow the field is for legally-operating cannabis producers in the UK but also that the authorities appear to be slowly accommodating this type of use; and
• it is reported that at least a couple of cannabis-related companies plan to list themselves on the London Stock Exchange. This follows FCA guidance on the requirements a company must meet in order to list, which we commented on in more detail in September last year.

One of the founders of these cannabis-related companies that seeks to list praised the FCA as being “great” to work with on the requirements for listing in London. This indicates a warmer and more engaged response to cannabis-related companies than we have previously seen from the UK authorities, notwithstanding the ongoing ambiguity around the application of POCA to cannabis-related investments.

The country legalised medicinal cannabis in 2018 but companies in the sector struggled to tap into the UK capital market owing to uncertainty over listing regulations. This prompted the Financial Conduct Authority to set out rules last September that would open the door to those providing the drug for medical use.