In this article, Shannett Thompson, partner at Kingsley Napley LLP, an internationally recognised law firm based in central London, explores the regulations around cannabis and investment in the UK.
As the regulatory landscape around cannabis in the UK evolves, investors are looking toward cannabis companies as a socially conscious investment, but in the UK, the drug is a controlled substance, as such, careful considerations need to be borne in mind.
Here, Shannett Thompson, a partner in the Regulatory Team at Kingsley Napley LLP, who has trained in the NHS and provides regulatory advice in the health and social care and education sectors, explains the legal landscape around cannabis and its implications for investing in cannabis as a UK national.
Cannabis is a controlled Class B drug under Part II, Schedule 2, of the Misuse of Drugs Act 1971 (the Act). It is also listed in Schedule 1 to the Misuse of Drugs Regulations 2001 (MDR 2001) and designated under the Misuse of Drugs (Designation) (England, Wales and Scotland) Order 2015 (2015 Order). Accordingly, it is illegal to possess, supply, produce, import or export this drug except under a Home Office licence.
An individual in possession of cannabis could face up to five years imprisonment and/or an unlimited fine. An individual who supplies, shares or deals cannabis can face up to 14 years imprisonment and/or an unlimited fine.
The makeup of Cannabis
Cannabis contains hundreds of chemical compounds. At least 113 of those are known as cannabinoids, with the most notable being Tetrahydrocannabinol (THC) and Cannabidiol (CBD). THC is known as the psychoactive compound in cannabis and it is what produces the ‘high’ feeling users receive, whereas CBD is not psychoactive and is known to relax users.
THC may cause users to experience:
- Mild hallucinations
What is CBD?
CBD is commonly marketed as a product that will:
- Reduce anxiety
- Improve sleep
- Relieve depression
- Be an effective pain relief
CBD is a non-psychoactive chemical compound found in cannabis and it does not cause users to be ‘high’. CBD can contain THC if the two components cannot be separated in the cultivation process, which has been shown to be difficult to do depending on the nature of the base plant used. There is a misnomer that CBD products can be legally sold, without a licence, if the maximum THC content is 0.2%; this position is not supported by the law.
Schedule 2, Part II of the Act lists those substances which are Class B drugs, which includes Cannibinol and Cannabinol derivatives. Whilst Cannabinol derivatives are not specifically identified within Schedule 2, Part II, of the Act, Schedule 2, Part IV further defines them and includes “tetrahydro derivatives of cannabinol”, which includes THC.
Medical cannabis legal changes
Although cannabis is illegal, it can be supplied, produced, bought and/or imported under a licence from the Home Office.
Section 5 of the MDR 2001 states:
- Where any person is authorised by a licence of the Secretary of State issued under this regulation and for the time being in force to produce, supply, offer to supply or have in his possession any controlled drug, it shall not by virtue of section 4(1) or 5(1) of the Act be unlawful for that person to produce, supply, offer to supply or have in his possession that drug in accordance with the terms of the licence and in compliance with any conditions attached to the licence.
Section 12 of the MDR 2001 expands on section 5, stating:
- Where any person is authorised by a licence of the Secretary of State issued under this regulation and for the time being in force to cultivate plants of the genus Cannabis, it shall not by virtue of section 6 of the Act be unlawful for that person to cultivate any such plant in accordance with the terms of the licence and in compliance with any conditions attached to the licence.
Furthermore, from 1 November 2018, the law surrounding medical cannabis changed following the cases of Billy Caldwell and Alfie Dingley, who required prescription cannabis to treat their severe epilepsy. The then Home Secretary Sajid Javid, removed the requirement for specialist doctors to obtain a licence before prescribing cannabis-based medicinal products (CBMP) to patients, and the MDR 2001 was also updated to include the definition for what constitutes a CBPM for medicinal use.
Can I invest in the cannabis market?
Due to the drug’s illegality, investments relating to cannabis would be caught by the Proceeds of Crime Act 2002 (POCA). As such, as a UK national/resident, it is important to consider the implications of investments in other jurisdictions where cannabis is legal, as the proceeds will still be caught by POCA.
Under POCA it is an offence to:
- Conceal, disguise, convert or transfer criminal property (s.327)
- Enter into or become concerned in an arrangement which you know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person (s.328)
- Acquire, use or possess criminal property (s.329)
Criminal property is defined in s.340 as ‘a person’s benefit from criminal conduct’ and includes all profits in connection with the criminal conduct.
The exception is that POCA does not apply if the company you choose to invest in has a cultivation licence provided by the Home Office to provide CBMPs.
Kingsley Napley LLP
Cannabis investment company to see UK and Europe growth
US cannabis investment company Thought Leaders has acquired UK CBD brand mellow.
US cannabis investment company Thought Leaders has acquired UK CBD brand mellow which will see the company accelerate its growth across the UK, Europe and Asia markets.
The $13.25m acquisition of mellow by Thought Leaders will also see the launch of the mellow brand into the US and will include mellow.store, the end-to-end e-commerce services Grow by mellow, along with 50 per cent of the recently announced mellow Asia.
mellow co-founders, Neil Tunbridge and James Storie-Pugh will remain at mellow as company heads looking at new investment opportunities for the group.
Pugh, commented: “We are excited to make today’s announcement and proud of our new partnership with Thought Leaders in the US.
“It’s such an exhilarating time for CBD and these developments put mellow in the pole position to steer success for our e-tail platform and our end-to-end e-Commerce services as well as mellow Asia. As a result, mellow as a company will be at the forefront of rapid market growth globally.”
Tunbridge added: “The cannabis industry is here to stay and more and more people are starting to embrace what is likely to be the single biggest driver of the health and wellness market over the next few years.
“The World Health Organization has recognised that CBD may have the potential to help with health issues such as sleep, insomnia to anxiety and pain.
“A paper published in the Journal of Cannabis Research, outlined the key reasons why people are turning to CBD. Anxiety, sleep problems, stress, pain and health and wellbeing came out as the most common reasons. Even the sporting world can see the advantages of CBD. The world Anti-Doping Agency removed CBD from its list of banned substances in 2017, and the Tokyo Olympics allowed athletes to use CBD during the competition. Sports stars and athletes are often drawn to CBD for anxiety, pain relief and healing.”
CEO of Thought Leaders, Mark Singleton, said: “mellow is a key component of Thought Leaders global growth strategy. It’s well curated assortment of industry leading CBD brands and products, consumer focused education and industry leading technology are an exciting addition to our portfolio.
“The anticipated launch of the mellow US marketplace will bring a world class CBD assortment to US consumers, providing variety and quality with accelerated revenues. James and Neil’s experience and leadership in CBD and direct-to-consumer strategies are a welcome and valuable addition to the growing Thought Leaders team.”
How COVID has and will continue to change the cannabis market
Canxchange looks at how COVID-19 has impacted the cannabis market.
The COVID-19 pandemic shocked the world and all its markets. The cannabis market has also experienced rapid changes, some of which are going to last.
The COVID-19 pandemic has decimated some economic sectors. On the other hand, some industries have experienced growth. The cannabis industry is decidedly one of the latter.
There are now many well-documented changes within the cannabis market. However, it’s important to distinguish which changes are temporary and which are expected to be longer-lasting. So, let’s start with the most immediate effects.
From the moment lockdowns were announced in the US, the cannabis industry has taken off. Cannabis companies were declared essential services in most states. Sales increased, and alleged hoarding resulted in a huge increase in demand.
In 2020, when Massachusetts ordered that dispensaries closed, 1,300 medical marijuana patients were registered. There, and in other states like Colorado, attempts to close dispensaries resulted in erratic increases in sales. In fact, Denver’s mayor reversed a decision to close dispensaries over the health risks of the long lines that inevitably formed.
The immediate effects of COVID-19 on the cannabis market can be defined by the erratic behaviour the market experienced. This, of course, was due at least in part to the chaos of regulatory responses to the emerging pandemic. However, wherever threats to cannabis supply emerged, we witnessed fast spikes in demand, through the rapid increase in sales.
Cannabis ingestible: increased demand
In addition to changes in overall demand, the immediate effects of the pandemic saw changes in the cannabis products that people bought.
One of the more pronounced changes was an increase in cannabis ingestible. For the first while, vaped cannabis products, smoked flowers, and concentrates saw a demand reduction. In some locations, sales of non-ingestible cannabis products either flattened or fell. However, sales of ingestible products increased across the board.
This increase in demand for ingestible cannabis products is believed to be the result of fears over the clear respiratory effects of catching COVID-19. In addition, as family members and roommates were forced to shelter together, many avoided smoking or vaping.
Many consumers in the cannabis industry are health-conscious. The focus on maintaining good health and having a strong immune system is more pronounced amid the pandemic. This is driving all kinds of consumers to health products. CBD is the cannabis market product that is benefiting from this trend.
Overall, the health effects of most cannabis products aren’t yet fully understood. The recent legalisation of the market in the US and several other countries has opened them to far more research. But these developments are relatively recent.
Within the cannabis industry, CBD is uniquely suited to meeting consumer demands for health products. There are many promising studies on the potential health benefits of CBD consumption. It has been particularly well-studied for its part in reducing seizures, anxiety, and pain, and fighting some inflammatory conditions. Amid these discoveries, cannabis businesses have successfully marketed CBD separately, and as a health product.
The result of these developments is greatly increased online orders of CBD products. CBD has made its way into health food businesses and pharmacies across the US. This trend will likely continue.
Of course, some of the above changes are temporary in nature. Life during the era of COVID-19 lockdowns naturally pushes people, including cannabis product customers, to changed behaviours and subsequent consumer choices.
Many of the effects of COVID-19 on the cannabis market were temporary and will perhaps revert over time. However, some trends have taken place and are likely to last.
Value-based consumer choices
Health considerations will naturally change as everyone emerges from the pandemic and its effects. However, the economic impact of the pandemic will be longer-lasting. Some businesses simply cannot make it through, and the broader economic impact is clear. This is primarily due to economic uncertainty and high unemployment.
During the pandemic, cannabis businesses providing the highest-priced products of all types experienced reduced sales and high inventory. Competition between top-priced brands rose to a level some experts viewed as unsustainable. Consumers, meanwhile, have demonstrated higher regard for high-value purchases.
As we move forward and economic uncertainty and unemployment remain concerns, demand for low- and mid-priced cannabis products can be expected to remain high. It’s possible that even in the face of a better-than-expected recovery, consumers will remain more price-conscious than in the past.
Online sales and delivery
The boom surrounding online shopping and delivery was set in motion well before the pandemic started. Now that it’s been shot into overdrive, demand for cannabis products bought online and delivered to your door has increased further. Where cannabis delivery is legal (under state regulatory conditions), this increased demand is likely to stick.
Some cannabis businesses won’t recover (or won’t come back)
Cannabis businesses, while legal on the state level, are still illegal on the federal level. This renders them ineligible for federal recovery loan programs, including being barred from the Paycheck Protection Program. Without this assistance, cannabis companies are far more reliant on consumers for their survival. Naturally, those businesses that are starved for cash are unlikely to weather the pandemic and its longer-lasting effects.
Some cannabis businesses will excel
The pandemic and its economic consequences can be described as a massive economic disturbance. And while every such disturbance will destroy some businesses, they also open up new opportunities in the market.
Cannabis businesses with the cash savings to make it through these challenges are in a better position going forward. Of course, reacting properly to the changes in consumer demands is also key. Many of those changes in consumer demands were temporary, but some will stick for a long time. Reacting well to the dynamism of the situation will help some segments of this industry excel.
CBD products manufacturer acquired by Yooma Wellness
Yooma Wellness has acquired CBD wellness product manufacturer N8 Essentials.
Based in the US, N8 Essentials’ products incorporate CBD, cannabinoids and functional ingredients. The acquisition was completed through Yooma‘s wholly-owned subsidiary, Socati Corp. and is expected to be synergistic to Socati by adding downstream manufacturing capability to Yooma’s US-based CBD and wellness products business.
Lorne Abony, Chairman of Yooma, commented: “The acquisition of N8 serves to further Yooma’s mission to build a global CBD and wellness platform.
“This acquisition satisfies our objectives of increasing Yooma’s United States presence as well as achieving vertical integration by adding downstream manufacturing capabilities to Socati.”
The acquisition adds N8’s 14,000 square foot manufacturing facility in Kansas to Socati’s existing 22,000 square foot facility in Montana, and will reduce reliance on third-party co-manufacturing agreements, creating cost savings and improvements to production quality and consistency. Yooma says the acquisition also provides opportunities for future expansion.
“We are very pleased to be adding N8 to our global platform,” added Yooma CEO, Jordan Greenberg.
“Their expertise in manufacturing CBD products will have immediate strategic and accretive value to Socati’s existing business, and will increase our ability to satisfy the growing demand for high-quality wellness products in the United States and abroad.”
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- Cannabis investment company to see UK and Europe growth
- How COVID has and will continue to change the cannabis market
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