Tuesday, September 27, 2022

FCA listing guidance for CBD and CBMP businesses

The Financial Conduct Authority (FCA) has issued guidance to cannabis-related businesses applying for listing. In a Primary Market Technical Note, published this week, the FCA supplies answers to the most common queries it receives, with the aim of helping “issuers and practitioners interpret our listing rules, prospectus regulation rules, disclosure guidance and transparency rules, and related legislation.” The guidance follows on from the FCA’s statement published last September which set out the authority’s approach to assessing applications to list for cannabis-related businesses.

The new guidance relates to the FCA’s assessment of whether a company’s activities would be detrimental to the interests of investors under s. 75(5) of the Financial Services and Markets Act 2000, but not to the application of the Proceeds of Crime Act 2002 (PoCA).

Given the complexity of the national and international framework of legislation and regulation within which cannabis-related businesses function, the FCA advises then to be “pro-active in raising with us at an early stage any question around the legality of the company’s operations or areas of significant legal uncertainty. In our experience from other companies, the absence of this early engagement has the effect of prolonging the eligibility review.”

For UK-based businesses involved in CBD products and cannabis-based medicinal products (CBMPs), the picture is encouraging: “The legal position of purely UK-based companies producing and supplying CBMPs (licensed and unlicensed), licensed cannabis-based medicines and/or pure consumer CBD is clear. The securities of such a company can be admitted to the Official List, if the company has the appropriate Home Office licences for their activities where they are required, and they otherwise satisfy the criteria for listing.

“We may request evidence that the company holds the appropriate Home Office licences or (as may be the case with pure CBD) that none are required. The company will also need to satisfy us that the entirety of their operations, including their supply chain, are UK-based.”

Once overseas companies and regulatory systems are involved, the picture becomes increasingly complex – still relatively straightforward for CBD products, but more complicated for CBMPs. For CBD products, “the risk of criminal conduct is linked to whether CBD contains a controlled substance (ie a substance controlled under UK drugs legislation). Whether there is an activity which gives rise to offences under PoCA may therefore depend on a scientific analysis of the CBD.”

For CBMPs, however, there is more to consider. “Amendments to UK drugs regulations in 2018 reclassified CBMPs to allow their use for medicinal purposes in the UK. However, strict controls on their production and distribution mean investment in overseas-licensed medicinal cannabis businesses remains a legally complex area. We consider that there is a risk that the proceeds from overseas medicinal cannabis business may constitute criminal property for the purpose of the PoCA. This may be so even where the company possesses a licence issued by an overseas medicines or pharmaceuticals licensing authority.

“PoCA defines criminal property with reference to ‘criminal conduct’, which is defined deliberately broadly. Criminal conduct includes not only conduct which is a criminal offence in any part of the UK but also any conduct outside of the UK which would be a criminal offence in the UK if carried out here. For example, if a pharmaceutical company produced or supplied CBMPs in the UK without appropriate Home Office licences, they would be committing a criminal offence (unless one of the limited exemptions applies). We cannot assume a person who has been licensed in an overseas country would be carrying on lawful business in the UK as licensing regimes differ globally. 

“Aside from the reclassification of CBMPs in 2018, the possession and supply of all other forms of cannabis remain generally unlawful.”

Overseas cannabis-related businesses may be admitted to the FCA’s official list, “provided we are satisfied their business does not give rise to any money-laundering offence under PoCA and they otherwise satisfy the criteria for listing… A company with cannabis-related activities legally operated overseas will need to satisfy us that those activities are for a purpose that is also lawful in the UK. We will also need to understand the legal basis of the company’s overseas activities, for example the nature of the local licensing and the licences the company holds. To satisfy us on these points, after consideration of the company’s operations and the relevant jurisdictions, we will request appropriate legal opinion(s) on the overseas company’s cannabis activities.”

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