In this article, Shannett Thompson, partner at Kingsley Napley LLP, an internationally recognised law firm based in central London, explores the regulations around cannabis and investment in the UK.
As the regulatory landscape around cannabis in the UK evolves, investors are looking toward cannabis companies as a socially conscious investment, but in the UK, the drug is a controlled substance, as such, careful considerations need to be borne in mind.
Here, Shannett Thompson, a partner in the Regulatory Team at Kingsley Napley LLP, who has trained in the NHS and provides regulatory advice in the health and social care and education sectors, explains the legal landscape around cannabis and its implications for investing in cannabis as a UK national.
Cannabis is a controlled Class B drug under Part II, Schedule 2, of the Misuse of Drugs Act 1971 (the Act). It is also listed in Schedule 1 to the Misuse of Drugs Regulations 2001 (MDR 2001) and designated under the Misuse of Drugs (Designation) (England, Wales and Scotland) Order 2015 (2015 Order). Accordingly, it is illegal to possess, supply, produce, import or export this drug except under a Home Office licence.
An individual in possession of cannabis could face up to five years imprisonment and/or an unlimited fine. An individual who supplies, shares or deals cannabis can face up to 14 years imprisonment and/or an unlimited fine.
The makeup of Cannabis
Cannabis contains hundreds of chemical compounds. At least 113 of those are known as cannabinoids, with the most notable being Tetrahydrocannabinol (THC) and Cannabidiol (CBD). THC is known as the psychoactive compound in cannabis and it is what produces the ‘high’ feeling users receive, whereas CBD is not psychoactive and is known to relax users.
THC may cause users to experience:
- Mild hallucinations
What is CBD?
CBD is commonly marketed as a product that will:
- Reduce anxiety
- Improve sleep
- Relieve depression
- Be an effective pain relief
CBD is a non-psychoactive chemical compound found in cannabis and it does not cause users to be ‘high’. CBD can contain THC if the two components cannot be separated in the cultivation process, which has been shown to be difficult to do depending on the nature of the base plant used. There is a misnomer that CBD products can be legally sold, without a licence, if the maximum THC content is 0.2%; this position is not supported by the law.
Schedule 2, Part II of the Act lists those substances which are Class B drugs, which includes Cannibinol and Cannabinol derivatives. Whilst Cannabinol derivatives are not specifically identified within Schedule 2, Part II, of the Act, Schedule 2, Part IV further defines them and includes “tetrahydro derivatives of cannabinol”, which includes THC.
Medical cannabis legal changes
Although cannabis is illegal, it can be supplied, produced, bought and/or imported under a licence from the Home Office.
Section 5 of the MDR 2001 states:
- Where any person is authorised by a licence of the Secretary of State issued under this regulation and for the time being in force to produce, supply, offer to supply or have in his possession any controlled drug, it shall not by virtue of section 4(1) or 5(1) of the Act be unlawful for that person to produce, supply, offer to supply or have in his possession that drug in accordance with the terms of the licence and in compliance with any conditions attached to the licence.
Section 12 of the MDR 2001 expands on section 5, stating:
- Where any person is authorised by a licence of the Secretary of State issued under this regulation and for the time being in force to cultivate plants of the genus Cannabis, it shall not by virtue of section 6 of the Act be unlawful for that person to cultivate any such plant in accordance with the terms of the licence and in compliance with any conditions attached to the licence.
Furthermore, from 1 November 2018, the law surrounding medical cannabis changed following the cases of Billy Caldwell and Alfie Dingley, who required prescription cannabis to treat their severe epilepsy. The then Home Secretary Sajid Javid, removed the requirement for specialist doctors to obtain a licence before prescribing cannabis-based medicinal products (CBMP) to patients, and the MDR 2001 was also updated to include the definition for what constitutes a CBPM for medicinal use.
Can I invest in the cannabis market?
Due to the drug’s illegality, investments relating to cannabis would be caught by the Proceeds of Crime Act 2002 (POCA). As such, as a UK national/resident, it is important to consider the implications of investments in other jurisdictions where cannabis is legal, as the proceeds will still be caught by POCA.
Under POCA it is an offence to:
- Conceal, disguise, convert or transfer criminal property (s.327)
- Enter into or become concerned in an arrangement which you know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person (s.328)
- Acquire, use or possess criminal property (s.329)
Criminal property is defined in s.340 as ‘a person’s benefit from criminal conduct’ and includes all profits in connection with the criminal conduct.
The exception is that POCA does not apply if the company you choose to invest in has a cultivation licence provided by the Home Office to provide CBMPs.
Kingsley Napley LLP