Clifford Chance

The FCA has issued a statement in response to queries from companies involved in the lawful cannabis industry outside of the UK who are interested in listing in the UK. In its statement the FCA sets out its analysis of the Proceeds of Crime Act in relation to cannabis-related businesses and how this impacts any application to list in the UK.

The FCA has said that it recognises that investment in overseas-licensed medicinal or recreational cannabis business activities is a legally complex area and there is a risk of UK firms being in breach of the Proceeds of Crime Act 2002 ("POCA").

In its statement issued on 18 September 2020, the FCA confirmed that it considers that proceeds from overseas medicinal or recreational cannabis business, even though lawful in the country where such business is conducted, may constitute 'criminal property' for the purpose of POCA. This includes where the company possesses a licence issued by an overseas medicines or pharmaceuticals licensing authority unless the licensed activity corresponds directly to activity which is licensable in the UK. The FCA has confirmed that the proceeds of recreational cannabis companies will in its view in all cases constitute 'criminal property' under POCA.

Under POCA the term criminal property is defined as the proceeds of any criminal conduct. The term 'criminal conduct' is broad and expressly captures not only an offence committed in any part of the UK but also any conduct outside of the UK which would be criminal in the UK if carried out here. The supply or production of cannabis for recreational use is a criminal offence in the UK and falls outside of the limited exceptions in the POCA definition.

The FCA has said it splits cannabis-related businesses into three categories:

Recreational cannabis companies

The FCA confirms that it treats the proceeds of recreational cannabis companies, wherever they are located and even if legalised in the jurisdiction in which they operate, as the proceeds of crime under POCA. A company engaged in such activities would therefore not be admitted to the Official List.

UK-based companies

A UK-based medicinal cannabis company can be admitted to the Official List, however, if the company has the appropriate Home Office licences for their activities where required.

Overseas companies

The FCA has said that where medical cannabis or cannabis oil companies with overseas activities would be legal if carried out in the UK, then the proceeds of their activities would not be the proceeds of crime. The FCA has cautioned that this is a complicated area which requires careful analysis of the relevant company's activities and a comparison between the lawful overseas conduct and the UK licencing regime: "We can't assume a person who has been licensed in an overseas country would receive a licence here in the UK as licensing regimes differ globally." The FCA has said that it would need carry out a review of any such company's application to be satisfied as to the POCA risk.

Conclusion

As set out in a previous post, given the broad prohibitions in POCA, UK firms could be committing a criminal offence if they profit from an investment in either (i) recreational cannabis companies, wherever they are based and even if recreational cannabis is legal in the jurisdiction in which they operate, or (ii) medical cannabis and cannabis oil companies with overseas activities if these would not be legal if carried out in the UK.

The FCA has confirmed that it applies a strict interpretation of POCA which may have broader implications than listing applications and could leave UK companies with overseas investments in the cannabis industry with difficult decisions about how to realise or otherwise act on their investments. Banks who provide financial services for such companies may also need to reconsider their position and take advice on dealing with customers in this industry to avoid incurring a POCA risk.

As the lawful cannabis industry grows overseas, there remains high demand in the UK for the government to provide further guidance in this area.

The FCA has stated that a guidance consultation in relation to the views expressed on listing applications will follow in "due course".