More than six months since a landmark decision to let cannabis firms into the heart of the UK’s financial establishment, one questions hangs over the industry: What next?
In September 2020, the Financial Conduct Authority (FCA) responded to a surge of interest from companies hoping to list on the London Stock Exchange by clarifying entry requirements for cannabis companies.
It meant the door was opened for medical cannabis and CBD companies with valid Home Office licences to raise funding via the LSE.
The FCA also established a process allowing overseas companies to prove their operations wouldn’t constitute ‘proceeds of crime’ under UK law, providing a landing strip for international firms looking for a new home.
It marked a major breakthrough for firms denied the opportunity to raise capital on the financial markets by a conservative regulatory regime.
A guidance consultation will take place in due course – a start date is yet to confirmed by the FCA – but the move has already changed the outlook for cannabis firms looking for investment.
Since then, three companies have listed on the LSE, with Australia-based biopharma firm MGC Pharma making history on February 9 by becoming the first.
It was joined a week later by Kanabo, an Israeli-based firm which entered the market via a reverse takeover by Spinnaker Opportunities.
Cellular Goods – the first UK-based company to list, buoyed by public interest in star-backer David Beckham – floated on the LSE on February 26.
Each time, shares were described as ‘significantly oversubscribed’ with prices soaring, settling and holding steady since.
But who’ll be next to take the leap? After a trio in quick succession, more than a month has now passed without a further listing.
Jersey-based Northern Leaf Limited – which has a rare commercial licence to grow and sell medical grade cannabis – recently announced they have raised £14m ahead of a planned LSE listing later in the year.
Will there be a larger influx of companies looking to London in the months ahead?
Alastair Moore, director of Hanway Associates, thinks so. The industry expert says moves are afoot which could see more cannabis companies heading to the LSE.
He told Cannabis Wealth: “There is a flurry of activity behind the scenes as anyone with a decent operation is considering the possibility of listing.
“Access to private capital has been tough for a lot of UK cannabis companies so the LSE offers a very real chance to raise the kind of money these fast growing companies need.”
Robert Jappie, a partner at law firm Ince and expert in cannabis regulation, shares this optimism and expects to see a flurry of activity over the coming months.
He credited the trio of companies to list already with ‘paving the way’, adding their ‘phenomenal reception’ proves there is an appetite for more.
He said: “I have clients who started their businesses really early and have been working hard to build them up for years.
“I hope the next 12-18 months will see people rewarded for that hard work.
“Businesses will be in a good position to take it to the next level. It’s a really exciting time.”
The allure of a seat at the big boys’ table can not be overstated in the world of finance.
Moore – whose consultancy firm specialises in supporting cannabis firms – said the seal of legitimacy conferred by the LSE would continue to attract to interest.
“An LSE listing is essentially a stamp of mainstream approval for a company operating in what is perceived as a risky sector.
“Not only is it better optics for investors, there is a high level of compliance and due diligence they will have had to go through. It is a positive for the sector as a whole, as it creates institutional trust.”
Key directors in the industry will also hope that seal of approval filters up to the people writing regulations.
When Kanabo announced it was listing in London, founder Avihu Tamir said he believed it would ‘game-changer’ for the sector and demonstrated that the UK could be following in the footsteps of North America in its acceptance of medicinal cannabis.
He told Cannabis Wealth earlier this month: “There is going to be a swift change in Europe. I think that what we saw starting in the US and Canada around like five years ago is now reaching Europe.
“Once you have the public market in a certain country being opened, you suddenly see the shift in how the cannabis industry is being perceived by decision-makers.”
The feeling of progress in the UK has been bolstered by moves abroad which has opened up huge new markets and pointed to opportunities in the future.
France recently launched its first medical cannabis trial, possibly presaging an overhaul of laws across the channel.
Across the Atlantic, New York politicians agreed a deal to legalise recreational use and Mexico became the world’s largest state to go for full liberalisation, sure signs of a global market which is changing rapidly.
With a positive mood music pervading the industry internationally, Moore believes London could be well placed to benefit: “With the recent listings and FCA clarifications the City has made it clear it wants to be an important part of what is fast becoming a global industry.
“I’ve always thought the UK had the right ingredients to be the best place for progressive cannabis companies to operate – a heritage of world-class pharmaceutical companies, a global finance hub, it’s an English language destination for North Americans entering the European market, and there are leading creative and professional services.”
Closer to home, the vexed issue of CBD products being designated as novel foods has hung over the sector throughout 2021.
But with validations set to start being signed off in April and ‘heads turned’ by the success of medical cannabis firms on the LSE, there could be a renewed spring in the industry’s step going forward.
Jappie said: “The thing that is most important is for the LSE is that they have confidence businesses listing with them are compliant with the law.
“That’s straightforward for a medical cannabis company. With CBD it’s always been a bit more difficult but the novel foods process should effectively clear that up and provide a clear route to compliance.”
The changes also helped to keep London competitive with competing exchanges like Frankfurt – and as London continues to define its investing environment post-Brexit, the shift could be seen as an attempt to prepare the city for competition over the fast-growing sector.
“Brexit is causing huge disruption in terms of moving product around internationally”, Jappie told Cannabis Wealth.
“There needs to be some benefits – making the UK the best place in Europe for cannabis companies to operate could be a vital one.
“If businesses don’t see support from regulators here they will go elsewhere to place like Germany – but things have started to change here.”
