In September 2020 the FCA published a statement regarding the listing of cannabis-related businesses (CRBs) in the UK. Since then several CRBs have been admitted to the London Stock Exchange (LSE) and appetite for investments in the medicinal cannabis industry continues to grow. The FCA has now published the proposed technical note it had promised in order to offer more detailed guidance to CRBs considering an application for admission of their securities to the Official List. This clarity is welcome because the stringent application process will serve to reassure and encourage potential investors and the potential rewards for a company that can attain a listing in the UK are significant.
Whilst the technical note is subject to a formal consultation and will only become official guidance once this process has been completed (please see our Corporate and Commercial blog here), the main thrust of the document is unlikely to change, reflecting as it does the FCA’s original stance in September last year. What it does do is provide welcome detail of the evidence would-be applicants will need to provide in order to pass the FCA’s eligibility review which, as the guidance makes clear, is substantial. There are no real surprises in these details but there are several requirements which may not have been fully appreciated before, specifically:
- The FCA will not admit the securities of a company with any recreational cannabis business, directly or indirectly, to the Official List. This statement underlines the meticulous approach the FCA will take in refusing admission to businesses with indirect links, for example through partners or affiliates, to recreational cannabis production which may be lawfully undertaken in other jurisdictions but which remains unlawful in the UK.
- UK-based companies producing and supplying cannabis-based medicinal products, licensed cannabis-based medicines and/or pure consumer products containing cannabidiol may have their securities admitted to the Official List if they have the appropriate Home Office licences and otherwise satisfy the criteria for listing. They will however also have to satisfy the FCA that the entirety of their operations, including their supply chain, are UK-based.
- Not all licences are equal and companies with cannabis-related activities lawfully operated overseas may have their securities admitted to the Official List only if the FCA is satisfied the activities are also lawful in the UK and that the business does not give rise to any money laundering offence under the Proceeds of Crime Act 2002 (POCA) (and they otherwise satisfy the criteria for listing). This is a high threshold and will require the applicant company to obtain legal opinions on the details of overseas activities including clear identification of the activities and their purpose, confirmation of the legality of the activities in the respective jurisdiction and in the UK, information on the jurisdiction’s licensing system and the company’s track record.
- In respect of any potential listing application, early engagement with the FCA is key and companies should be pro-active in bringing to the attention of the FCA any areas of legal uncertainty in order to expedite the eligibility review.
The FCA is quick to point out that its technical note may not be relied upon as guidance on POCA, which of course is the huge area of concern for investors in CRBs, but the proposed blanket application of additional due diligence to all such businesses looking to list in the UK speaks to the FCA’s assessment of the risk these businesses may pose: the FCA will normally only ask for this level of due diligence in exceptional cases where they think there may be a high risk that admission of the applicant’s securities may be detrimental to investors’ interests.
As the FCA notes in its introduction, this new guidance is designed to aid interpretation of the Listing Rules and related legislation but it also serves to put potential investors in CRBs on notice of the risks involved. An investor in an unlisted CRB in the UK or a CRB listed in an overseas jurisdiction may commit a money laundering offence if they receive or deal with income from an aspect of the business which is considered unlawful in the UK only if they know or suspect that the income represents the proceeds of a crime. This latter element is designed to protect the unwitting who may handle property which is in fact the proceeds of crime about which they had no knowledge or suspicion. Suspicion however is a very low bar for an individual to reach before criminal liability might be engaged and the FCA’s guidance and clear stance will make it harder for an investor to argue that they did not suspect the income they received was the proceeds of crime when the potential risks have been so clearly sign posted.
Further Information
For advice on the issues raised in this blog please contact a member of our team and see our further blogs and news stories in ‘Medical Cannabis: Licensing and Investment Insights’.
About the author
Nicola Finnerty is a Partner in our Criminal Litigation team and a leading expert in white collar and business crime, proceeds of crime & asset forfeiture. Over the last 25 years she has been involved in many of the most high-profile, complex criminal and regulatory investigations and prosecutions, both in the UK and in matters which span multiple jurisdictions. Her expertise includes money laundering, fraud & bribery and corruption along with being regularly consulted by individuals and institutions in the regulated sector in respect of the Money Laundering Regulations 2017. Nicola represents high net worth individuals, multi nation corporate clients, financial institutions and professional firms in investigations and proceedings brought by UK enforcement agencies.
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