Speed read: Cannabis-related investment is on the rise. The market for CBD, a compound extracted from the cannabis plant, in the UK is forecast to be worth £16.5 billion over the next decade. CBD is not a controlled drug in the UK but would-be investors should not ignore the potential for proceeds of crime legislation to be engaged. A recent call for Home Office clarity over the amount of THC that is permissible in CBD products highlights that, in some cases, there is scope for criminal conduct and money laundering to arise.
Changes to cannabis laws around the world are generating a raft of business and investment opportunities. On 7 August 2019, Luxembourg confirmed that it had plans to be the first in the European Union to legalise consumption and production. The move follows Canada’s legalisation in October last year. The UK is also experiencing the beginning of reform in this area. Cannabis importation, production and supply is illegal under the Drugs Misuse Act 1971 but cannabis for medicinal use has been available to be prescribed since November 2018. For many, reform of the law means investment activity but UK investors do need to consider the engagement of the money laundering provisions in Part 7 of the Proceeds of Crime Act 2002 (POCA), a point which the Law Commission highlighted in their recent report in to the Suspicious Activity Reporting regime.
Impact of POCA 2002
This is because, subject to a small handful of exceptions that do not apply in the cannabis context,[1] ‘criminal conduct’ for the purposes of money laundering is judged solely according to English law irrespective of where it took place. Connecting the dots, ‘criminal property’, the key component in any money laundering offence, captures property connected to criminal conduct. Although highly doubtful that lawmakers at the turn of the millennium when POCA was introduced ever intended to catch those legitimately investing in companies trading transparently in a country like Canada, the potential triggering of the offences and reporting provisions in Part 7 cannot be ignored when eyeing a cannabis-related investment. That said, several factors will need to be taken into account. Whether an issue will arise can depend on the nature of the cannabis-related activity at the heart of the enterprise, scope for licensing of that activity by the Home Office (and therefore legality) under English law as well as territorial considerations.
Rise of CBD
Seen in this context, investing in the cannabidiol (CBD) market as opposed to the recreational cannabis market may seem more straightforward. Demand for CBD is growing, with recent reports that the CBD market in the UK is forecast to reach £16.5 billion in the next decade. CBD, a chemical compound extracted from parts of the cannabis plant but which lacks the psychoactive effect of other compounds, most notably tetrahydrocannabinol or THC, is not a scheduled drug under the Drugs Misuse Act 1971. It, as well as products that contain CBD, are therefore perfectly legal under English law. At first glance, Part 7 of POCA simply does not apply.
This, however, will not always be the case. The Home Office factsheet on cannabis and cannabis-related products which it issued after the change in the law on medicinal cannabis in 2018 states the following:
If a CBD ‘product’ contained any controlled cannabinoids, unintentionally or otherwise (e.g. THC or THC-V), then it is highly likely that the product would be controlled. It is our understanding that it is very difficult to isolate pure CBD, and in our experience many products in fact do not fully disclose their contents or provide a full spectrum analysis at an appropriate level of sensitivity to accurately and consistently determine their true content or control status.
It follows that if a CBD product also contained THC (or other controlled compound) then, in principle, a ‘criminal conduct’ and ‘criminal property’ issue could arise under Part 7 POCA. At its simplest, any return on the sale of a product which contained an identifiable controlled substance would fall to be considered property obtained in connection with criminal conduct ie., supply of a controlled substance assuming no Home Office permission had been given. In the context of evaluating CBD-related investment opportunities, it will be vital to understand the detail of the product and whether it solely contains CBD or other substances which are illegal under UK law. If they do contain such substances, it will then be important to know the amount. Whether or not a drug offence is made out can depend on a substance’s quantifiability.
In the light of the above, the position where CBD contains a small amount of THC arises for consideration. Contrary to some information the public domain, nothing in the Home Office’s factsheet on cannabis-related products or any other current guidance says that it is permissible for CBD products in the UK or CBD imported into the UK to contain 0.2% THC. Indeed, the Factsheet states, the “0.2% reference is used solely to identify varieties which may potentially be cultivated, within the scope of this policy…”. Accordingly, the limit only relates to plant cultivation. The confusion has attracted the attention of the Royal Pharmaceutical Society, the body responsible for supporting the pharmacy profession in the UK, which is concerned about products on the market in the UK sold through pharmacies which disclose that they contain minute amounts of THC. Very recently, it called on the Home Office to clarify the position in relation to CBD oils as the 0.2% limit in the Home Office factsheet applies to plant matter only suggesting that CBD oil even with small amounts of THC would appear to be illegal. [2]
As yet, the Home Office has not revised its factsheet or issued any further guidance. In the absence of clarification, where CBD is mixed with a controlled substance and supplied or imported into the UK issues of ‘criminal conduct’ and consequently, ‘criminal property’ can arise. As such, investors eyeing opportunities that appear to squarely fall in to the CBD as opposed to recreational cannabis category would be wise not to overlook the potential impact of POCA.
[1] Proceeds of Crime Act 2002 (Money Laundering Exceptions to Overseas Conduct Defence) Order 2006.
[2] See ‘RPS asks for guidance on THC levels in cannabidiol oil’ at https://www.pharmaceutical-journal.com/news-and-analysis/news/rps-asks-home-office-for-guidance-on-thc-levels-in-cannabidiol-oil/20206419.article?firstPass=false (accessed 8 August 2019) and ‘UK Body Calls for Clear Guidance on THC Levels in CBD Oils’ at https://hbw.pharmaintelligence.informa.com/RS148986/UK-Body-Calls-For-Clear-Guidance-On-THC-Levels-In-CBD-Oils (accessed 9 August 2019).
