The (legitimate) cannabis industry is forecast to be worth $65 billion by 2027. The first medicinal cannabis business to launch an IPO on the London Stock Exchange saw its shares double upon listing, with fundraising oversubscribed due to strong demand among investors.
Yet, despite strong performance and investor interest, the UK legal and regulatory framework remains restrictive as regards medicinal cannabis; and investing in recreational cannabis businesses (operating in countries where such business is legitimate) remains largely off-limits.
The FCA's guidance on listings of cannabis-related businesses makes it clear that listing is restricted to UK-based medicinal cannabis companies and certain overseas-licenced medicinal cannabis companies. Whereas UK investors hoping to invest in overseas legitimate recreational cannabis businesses are likely to fall foul of the money-laundering provisions in view of the ongoing illegality of recreational cannabis in the UK.
The Proceeds of Crime Act 2002 (POCA) prohibits dealing with any benefit (directly or indirectly) arising from criminal conduct. Conduct is criminal if it:
- constitutes an offence in any part of the UK, or
- would constitute an offence in part of the UK if it occurred there.
This principle of "dual criminality" means that measures to legalise cannabis overseas are largely irrelevant when it comes to investing in the UK. This is because the possession, production and supply of cannabis for recreational purposes remains illegal in the UK. As such returns generated by recreational cannabis companies abroad risk falling within the definition of the proceeds of crime and UK investors, in turn, risk committing a money laundering offence.
Whilst there are certain exceptions and defences to the offences under POCA, they are largely not applicable in relation to recreational cannabis related business. The so-called "Spanish bullfighter provision" creates an exception for conduct which is legal overseas but illegal in the UK. This only applies, however, where the conduct would attract a custodial sentence of 12 months or less if it had occurred in the UK. This is of no use in respect of recreational cannabis, where supplying or producing the drug can attract a custodial sentence of up to 14 years.
Similarly, while it is a defence to acquire criminal property for "adequate consideration", this defence is not available for other offences, which are likely to be engaged in the course of investing (including the section 328 arrangement offence). Finally, investors can apply for a Defence Against Money Laundering (DAML) from the NCA if they believe that they risk committing a money laundering offences. While this may allow investors to avoid criminal liability in certain circumstances, it is unlikely to offer an acceptable solution where the investments are ongoing.
Although the risk of action being taken against a UK investor by law enforcement may be considered low when dealing with the indirect proceeds of cannabis, UK companies and investors should be sure to understand the precise nature of their investments or transactions and to keep in mind that investing in, or doing business with, companies involved in recreational cannabis, even where their activity is legal under the laws applicable to them, may nonetheless cause the UK-based investor or counterparty to violate UK money laundering laws.