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Cannabis-Cautious Financial Regulators Delay UK Cultivator’s London Stock Exchange Plans

HELLENIC Dynamics, set to become the first ever cannabis cultivation company to list on the London Stock Exchange (LSE), is now planning to launch its IPO later this month.

The Greek cultivator announced its intention to list on the Standard segment of the LSE’s main market through a reverse takeover (RTO) in August last year, after it was acquired by AIM-listed cash shell UK SPAC Plc. 

During an interview with BusinessCann in September 2021, Hellenic’s Vice President Davinder Rai said that he expected the company to ‘join the LSE before the end of October at the latest’. 

Hellenic now says its ‘new long-stop date for UK SPAC is the end of this month, as it continues to work through the rigorous and lengthy requirements of the Financial Conduct Authority (FCA). 

“It’s taken a little bit longer with the opinions and everything, but so far the FCA seems pleased with everything that we provided and we are looking forward to listing I think probably early January,” Mr Rai explained. 

“Truth be told, since the change of legislation with the FCA and LSE this year, it is pretty clear what you can and what you can’t do. So it’s nothing difficult going through the process. The difficulty has been providing all the legal opinions about it.”

Hampering Growth 

In order to be accepted onto the LSE, Hellenic must prove that its operations in every territory, including cultivation in Greece and distribution in Germany, meet UK law.

This requires Hellenic to procure expert legal opinions, all ‘underpinned by a QC barrister in the UK’, to reassure the FCA its overseas operations subscribe to UK legal requirements regardless of local law. 

These requirements, according to a number of industry insiders, are hampering the growth of the European cannabis market, deterring companies from attempting to list amid concerns about the additional time and money required to do so. 

Davinder Rai

One industry analyst told BusinessCann that this new guidance, which was released by the FCA in July, ‘looks like it is supportive but is exceptionally weird’. 

They explained that these regulations are being ‘differentially applied’ to the cannabis industry and that only cannabis-based companies were required to provide such detailed reassurances of the legality of their overseas operations to the FCA. 

They added that this demonstrated the ‘extreme caution’ the FCA and LSE continues to show towards cannabis companies, and that this ‘of course inevitably feeds into institutions’ appetite’ to invest in the sector. 

Kanabo’s CEO Avihu Tamir, who in May agreed a Memorandum of Understanding with Hellenic to buy up to 1,000kg of its crop per year, also believes these regulations are putting cannabis companies off attempting to list in London.

He said that without these regulatory ‘bottlenecks’ the LSE would have already had ‘a dozen companies listing by the end of 2021’. 

Mr Rai echoed this, adding that Hellenic ‘was always of the assumption, even with our models, that there would be more cultivators coming to the market this year’. 

Why Is The LSE Being So Cautious?

In December 2021 the LSE changed its listing rules, dramatically increasing the minimum market capitalisation for both premium and standard listing segments from £700,000 to £30m. 

This shift is indicative of the market’s changing attitudes regarding the companies it hopes to attract, favouring those with a much more solid finances. 

According to Mr Rai, this shift has been a key factor in its attitude towards cannabis companies throughout 2021.

Hellenic’s Greek facility

“I don’t think the LSE actually went out and tried to make it difficult. I think that the LSE is looking for solid companies, solid operations and solid sales forecasts to come in first before those doors open and set a precedent.” 

He added that the FCA and LSE are being particularly strict towards cannabis companies in an effort to ‘avoid a situation that potentially happened in Canada’. 

“At first you would have companies listing with a licence and a greenfield site achieving very silly valuations. Ultimately that led to the detriment of other cannabis companies, because those valuations turned out to be not entirely accurate based on what those companies had.”

“So I think the FCA is doing it right. I think they’re choosing the right companies on the right exchanges. And I think if the FCA continues to do that, we’ll have a much more buoyant medical cannabis industry here in Europe. 

“I think London will become the hub of medical cannabis companies.”

Setting A Precedent

Although Hellenic has undergone an arduous process in order to satisfy the FCA it is suitable to list on the LSE, the company believes the process will benefit the industry at large. 

Since it approached the financial watchdog in July 2021 regarding its IPO, Mr Rai says Hellenic has ‘for want of a better word, been teaching the FCA exactly what a cannabis cultivator can do, and what it can’t do’, adding that companies that follow will ‘100%’ have an easier time. 

“I think there’s a payoff as well, that not only are we coming into the European market through the LSE, we’re educating the market at the same time.”

“We’re now at the end of our process with the FCA and looking forward to listing, and I think there’ll be a wave of companies that come afterwards. 

“I think everyone coming in behind us are coming into an educated FCA.”

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