John Binns, Partner at BCL Solicitors LLP says it’s high stakes when it comes to the UK finally clearing a pathway towards cannabis investments
Businesses that work in the cannabis industry are accustomed to regulatory issues, but the UK’s rules are both stricter than those of other jurisdictions, and more complicated than they need to be. As an increasing number of businesses seek to list in the UK, the Financial Conduct Authority’s consultation on a new Technical Note (following an earlier Statement on its approach), covering the issues they will face in their applications is certainly welcome. But there are four areas in which it might consider going further.
Involvement from other agencies
The first is to involve other agencies in its approach, given that overlapping issues are being considered by the Home Office (which licences cannabis activities), the National Crime Agency [which receives requests for consent under the Proceeds of Crime Act 2002 (POCA)], and the Medicines and Healthcare products Regulatory Agency (MHRA) [which regulates medicines, including Cannabis-Based Products for Medicinal use in humans (CBPMs)].
While the FCA would rely on the Home Office and the MHRA to deal with the question of UK-based CBPMs, it seems keen to make its own assessment with respect to equivalents overseas. The problem is that its assessment is, essentially, about whether the business would be licensed if it happened in the UK – so it is not hard to see why some consistency of approach between UK agencies would be desirable. In the absence of a single cannabis-regulating agency here, it is incumbent on these agencies to work together.
A margin of appreciation
The central recommendation of the Note is that businesses wishing to list should obtain a legal opinion to cover, among other things, the question of whether their overseas activities would be lawful in the UK. Because different jurisdictions have different legal systems and different ways of licensing CBPMs, the exercise will often be one of finding approximate equivalence and ‘best fit’, allowing for some leeway in terms of what other jurisdictions allow and require. In other legal contexts, this would be called a ‘margin of appreciation’, a recognition that lawmakers in other countries are entitled to do things in their own way, provided they fit broadly within a minimum set of requirements. In due course, we will find out how the FCA will apply these standards, but in the meantime, it will need those legal opinions to get to the heart of the matter.
A pragmatic approach to CBD
One issue on which UK law is arguably lagging very far behind industry practice is the regulation of cannabidiol (CBD). Most products that contain CBD are also likely to contain THC, in ‘trace’ amounts. In most jurisdictions, the issue is the percentage of THC present – a 0.2% threshold is often used – but this is not the case in the UK. Instead, sales of CBD products in small containers are either allowed or tolerated, while importation, manufacturing, and wholesale of it in large containers are not.
By talking about ‘cannabis oil’ businesses as potential candidates for listing, the FCA’s earlier Statement implied that it might take a pragmatic approach. The Note seems to row back on that, by acknowledging only that ‘pure’ CBD and CBD-based CBPMs would be considered lawful. So, where does that leave businesses that deal with importation, manufacture, or wholesale of low-THC, non-medicinal, CBD? A pragmatic approach, perhaps simply adopting the 0.2% threshold, would be both possible and welcome, and point the way for other agencies to follow.
Clarity on the ‘recreational’ market
Finally, as anticipated in the earlier Statement, the Note takes a predictably absolutist approach to the ‘recreational’ market, although it is not yet clear how far this will be taken. What if, for example, an overseas business deals mainly with CBPMs, but has a product line containing low-THC CBD? What if a business that now exclusively sells medicinal products previously held a wellness subsidiary, leaving it with a POCA problem?
Unless the definition of ‘recreational cannabis’ imports a THC threshold (as above), and/or the prohibition applies only to a business that is current, this is already too strict. Perhaps the better approach is for the FCA, having made the general point that recreational cannabis is not (for now) to be encouraged, to keep an open mind on where the margins of that concept might be.
Some signs of progress
The list of areas where the Note might not be considered perfect should not discourage active engagement on the detail: even on the cautious basis that seems to be proposed, this represents significant progress for an industry that the UK’s legal and financial establishment has not so far seemed keen to welcome. As the FCA formulates its policy, banks become more open-minded and professional advisers come on board, this is a sector of the UK industry that is heading in the right direction.
