UK: The Cannabis Industry: Legal Issues For Businesses And Investors

Last Updated: 22 February 2019
Article by John Binns

Increasingly, businesses in the UK are looking at entering into, or investing in, the legal cannabis industry, domestically or overseas. But the legal landscape is complex and in flux. BCL partner, John Binns explains the issues that will need to be considered to keep your business on the right side of the law.

The recent cultural change in attitudes to cannabis in the UK and elsewhere has been vertiginous, with a multitude of small- and large-scale businesses now entering into a market whose value is huge and growing. But while changes to the UK law in this area have caught the public imagination, they are still very modest by comparison, and there are significant legal hurdles that have to be overcome.

The starting point of course is that cannabis is a controlled drug under the Misuse of Drugs Act 1971 (the 1971 Act), which means that exporting, importing, possessing, or supplying it in the UK is a criminal offence. (There is also a specific offence in section 20 of the Act of assisting a drugs offence overseas, which we will return to later.) There are powers delegated to the Home Office to make exceptions for certain purposes, including for medical research and the cultivation of hemp, and (to a very limited extent) for medical products (more on which below).

There are other jurisdictions of course where the position is very different, and some (the most notable recent example being Canada) where cannabis is now legal. The issue however when a UK business invests in the cannabis industry overseas is that, under the Proceeds of Crime Act 2002 (POCA), the definition of 'criminal conduct' includes anything done overseas that would be an offence if it happened here, even if it is legal where it occurs.

The effect of that provision is that the activity of the Canadian business (for example) may be 'criminal conduct', and doing anything with (even just receiving or possessing) the proceeds of it may therefore amount to 'money laundering'. Importantly though, there are various other provisions of POCA that may prevent that offence applying, including a facility to apply to the National Crime Agency (NCA) for consent. (The NCA prefers the phrase 'Defence against Money Laundering', or 'DAML').

This of course puts the NCA in an interesting position. If it is seen to consent to UK businesses receiving the proceeds of overseas cannabis sales, that could be interpreted (or misinterpreted) as the UK softening its stance on the legal status of cannabis. If it refuses consent, that raises the question of what could happen next. Provided the business here has made its request properly, a money laundering investigation should be out of the question. And if the activity is genuinely lawful overseas, the proceeds should not be the target of freezing or seizure.

In practice, then, for businesses who take care in how they proceed in this area, it should be possible to overcome the hurdles of POCA, and receive the proceeds of overseas sales. The issue of legality in the other jurisdiction however is key, with the risk of assets being frozen, or even offences under section 20 of the 1971 Act, if (for instance) the activity concerned is deemed to contravene US federal law. Issues around the timing and content of consent requests, and how to respond to NCA questions (for which, typically, very little time is given), will also be important, to ensure the investor stays on the right side of the law.

Meanwhile, of course, the legal landscape for activities in the UK itself has issues of its own. Recent changes to regulations make medical cannabis products less difficult to obtain than they were, but the licensing regime for these remains extremely restrictive. Increasing interest in medical research and hemp cultivation seems likely to put the Home Office licensing regime under more pressure, with the onus on businesses to get it right when it comes to providing the detail of what they propose to do, where, who with, and with what safeguards.

Interestingly, CBD oil, despite its increasing visibility on the high street, remains a product that raises difficult issues, and where official guidance can be hard to follow. Very broadly speaking, where CBD products are marketed for medical use, the Medicines and Healthcare Products Regulatory Agency (MHRA) has said they are covered by their regime. Otherwise, even low-THC products may need a Home Office licence, and food safety laws may also come into play.

Whether a UK business is involved in the cannabis industry domestically, overseas or both, then, it will pay to be mindful from the start of the legal context here. While few would now dismiss predictions that the UK will ultimately change its stance and take a more liberal view, for the time being at least this remains a heavily regulated area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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