01/05/2024

Do UK Anti-money Laundering Provisions Hinder Investments in Overseas Medical Cannabis Companies?

The legal cannabis market is flourishing. For more than five years it has been possible to prescribe medicinal cannabis products, but is it yet possible for UK businesses to take full commercial advantage and freely invest in companies involved in making them? Paul Chadwick and Benjamin Liebenberg report below.

In the UK, to cultivate, possess, produce, supply, import or export such products, a company would need a licence from the Home Office, unless it was otherwise exempt.

Where a company does not have a medicinal exception and a Home Office licence, ‘cannabis’ (although not pure cannabidiol) is still a class B drug according to the Misuse of Drugs Act 1971 (MDA), alongside recreational cannabis products. So, to directly perform one of the above functions would likely be an offence.

What about investing in such companies?

Investing in companies licenced by the Home Office and with a supply chain entirely in the UK presents no problem. Nor would investing in companies officially listed by the Financial Conduct Authority (FCA) once it is satisfied that the Proceeds of Crime Act 2002 (PoCA) does not apply, and a company’s products are otherwise capable of being licenced in the UK.

But is the grass as green on the other side when it comes to investing in overseas companies though?

Technically it may well not be, particularly where a company’s products are not capable of being licenced, as this would amount to an activity and conduct which would constitute an offence in the UK, were it to occur here.

If a cannabis based medicinal product is lawfully manufactured and legal in another country, as rules vary, its composition may mean it is still not capable of being licenced in the UK. Even if it was capable, it may well not have a licence anyway.

Olé

Consequently, we have a ‘Spanish bullfighter’ issue. Even if a medicinal cannabis product is legal in another jusrisdiction, it does not follow that returns from investing in the enterprise producing it there would be for example. This remains the case, even where the beneficiary of the investment has nothing to do with recreational cannabis products.

Revenues and returns on investments like these in the UK could be considered to represent criminal property given cannabis’ status under UK law. Their structure needs to be carefully thought through.

Whereas the Spanish bullfighter would be able to spend their hard-earned cash in the UK given the minor offence exception under the PoCA, weeding through these PoCA exceptions you will not find a similar one in the case of medicinal cannabis products. This is because the predicate MDA criminal conduct benefits are being enjoyed from, would attract a maximum sentence of more than a year and or an unlimited fine.

What can be done about it?

There is the possibility of defending a s.329 PoCA offence where adequate consideration at market value is paid for shares in a company linked to the production of medicinal cannabis products. However, selling the security for a profit in the UK could still be an offence under s.327 and buying them in the first place could be considered a s.328 offence.

Better still, before making any investment, it would be prudent to consider securing a defence against all three money laundering offences from the National Crime Agency (NCA).

However, assuming it gives consent, deemed or otherwise, it will not be a cure all for every implication of such an investment. How often would a defence be needed? What about offences other than money laundering under the PoCA? What about the effects of overseas extra territorial legislation?

The lack of enforcement activity from the NCA or providing an active response to defence requests suggests it may have mellowed over time, but no official guidance has been published either by the NCA or the Home Office.

As a Consequence

Despite the creeping sense of deregulation, the FCA being willing to list companies producing products capable of being licenced in the UK and the NCA not actively declining requests for defences for a proposed investment, the impasse remains in the absence of government clarification and further reform.

As a result, commercial opportunities are still being stifled and companies are still at risk of exposure, where revenues derived from such investments are brought into the UK.

For further information about issues raised in this article, please contact a member of our Business Crime & Investigations team.