UK anti-money laundering laws are deterring investment in the cannabis industry in Europe, according to lawyers and industry executives.
“It’s like a school race. Everyone is waiting to go but no one wants to cross the line first in case they are disqualified,” said Alison Saunders, dispute resolution partner at Linklaters.
The Proceeds of Crime Act (POCA), the UK’s principal anti money-laundering legislation, rules that anyone making money from illegal activities can be prosecuted. Cannabis is only legal in the UK as a medicinal drug on prescription or as cannabidiol (CBD), a non-psychoactive compound of the plant. Recreational use of the tetrahydrocannabinol compound, which has psychoactive properties, is illegal.
Investors fear that if they back businesses such as the large cannabis producers in Canada, where recreational cannabis is legal, they could be prosecuted in the UK.
Penalties could include confiscation of investment proceeds, such as dividends, or fines and these worries have also affected investment in CBD and medical cannabis brands, said industry executives.
Jonathan Summers, chief executive of UK medical cannabis company EXMceuticals, said: “In general there’s a big fear around POCA but it’s misunderstood and in some cases it’s used as an easy excuse to stop people investing in the [sector] when it’s probably totally legal.”
In a report published last week by research firm Prohibition Partners, the authors warned that offences under POCA were “broadly drawn and often unclear”, adding that many looking to invest were relying on an exception for conduct that is illegal in the UK but legal in the country where it takes place.
Prohibition Partners estimates the cannabis market in Europe will be worth €123bn by 2028.
“The Home Office needs to make a policy decision on this,” said Ms Saunders, who added that she had received “well over a dozen” inquiries about the issue in the past three months.
The Home Office said that it “supports law enforcement when potential criminal activity is identified that breaches UK law”.
Nick Davies, chief executive at specialist law firm Memery Crystal, said that unease about POCA was also delaying UK listings.
“On the listings that we’re working on, we are doing significantly more due diligence than we would for an oil or mining company in the same jurisdiction because of POCA,” he said.
Memery is working with two companies that hope to be the first cannabis companies to be listed on a major UK exchange. Mr Davies said that both were “firmly on the right side of POCA” but had been delayed by extra paperwork.
The UK’s National Crime Agency said it considered applications for exceptions to the law through its Suspicious Activity Report process.