A budding industry: the FCA considers the listing of cannabis companies

The Financial Conduct Authority (FCA) has published a short but welcome statement setting out its position on the listing of cannabis-related businesses.

Investing in cannabis-related businesses is a complicated legal area. As we explained in an article at the start of 2019, the cannabis industry worldwide is increasingly lucrative and attractive to investors. However, under the Proceeds of Crime Act 2002 (POCA), UK investors in cannabis-related businesses risk committing a money laundering offence when they trade. The risks involved in investing in this industry have not been helped by a general and longstanding silence on this issue from the relevant UK authorities, such as the National Crime Agency and the FCA.

Existing or potential investors will therefore be interested to see this statement published today. The FCA’s stated position on listings of cannabis-related companies is that:

• the securities of recreational cannabis companies, even those in jurisdictions where it is entirely legal, will not be admitted to the Official List;
• purely UK-based cannabis companies, which operate under the appropriate Home Office licenses for their activities, can be admitted to the Official List; and
• overseas–licensed medicinal cannabis companies may be admitted to the Official List provided that the FCA carries out a review of the company and is satisfied that the proceeds from these companies would not come within the remit of POCA and that they meet the other criteria for listing. In short, the company will need to satisfy the FCA that the activities it undertakes would be legal if they were carried out in the UK.

The legal position for investing in cannabis-related companies therefore remains relatively consistent with the last 18 months in that it is still quite an ambiguous area, with potentially high rewards for investors but also a risk of committing an offence under POCA. The clarifications from the FCA today will no doubt be welcomed.

While many issues around investing in cannabis have not been addressed and will continue to cause investors problems, the FCA’s statement also contains the helpful clarification that a company operating legally abroad under a licence cannot assume they would be granted a similar licence in the UK by the Home Office. Therefore foreign cannabis companies dealing exclusively in medicinal cannabis, even under licences in their home jurisdictions, pose a money laundering risk to investors if they do not operate in the UK under specific Home Office licences.

We note that this statement is subject to a guidance consultation, which is still to come. We will carefully watch for any conclusions and further clarifications that arise from that consultation.