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
Roundup of Q1 2022 financial results in the UK medical cannabis space
Companies across the cannabis industry announce financial results for the first quarter of 2022, Cannabis Wealth rounds up the results of six major firms expanding within the UK medical cannabis space.
2021 was a positive year for cannabis businesses with 165 per cent year-over-year growth in cannabis equity capital raises and a series of high profile mergers and acquisitions. Compared to 2020, which was characterised by plunging investment and struggling businesses, the future of the UK industry is looking bright. With the first quarter of 2022 coming to a close on 31 March, companies are now releasing financial results from the first three months of the year.
Jazz Pharmaceuticals reveals financial results one year after GW Pharmaceuticals acquisition
In February 2021, Dublin-based firm Jazz Pharmaceuticals announced its acquisition of GW Pharmaceuticals, developer of the UK’s only licensed cannabis-based medicines, Sativex and Epidiolex.
In its financial results for the first quarter of 2022, the firm reported that its net product sales of Epidiolex increased by 6 per cent to $157.9 million in 1Q22 compared to the same period in 2021, on a proforma basis.
Epidiolex is now commercially available and fully reimbursed in four European markets: United Kingdom, Germany, Italy and Spain, with an anticipated launch in France in 2022. The company said it has made “significant progress” on its European rollout with launches in Spain, Italy and Switzerland in the third quarter of 2021 and Ireland and Norway in the first quarter of 2022.
The Company expects to initiate a Phase 3 pivotal trial of Epidiolex for Epilepsy with Myoclonic-Atonic Seizures (EMAS), the fourth target indication for Epidiolex, in the first half of 2022.
Khiron Life Science achieves 240 per cent sales volume growth in the UK
Toronto-based international medical cannabis company Khiron Life Sciences has reported a sales volume growth of 240 per cent in the UK market in Q1 2022 compared to the entire year of 2021.
In late 2021, Khiron opened its first European Zerenia Medical Cannabis Clinics in the UK, offering telemedicine service to patients around the country, and contributing to the company’s patient acquisition and retention growth.
“[Our] KHIRON 20/1 THC-predominant strain is one of the best-selling medically prescribed products in the UK market,” Franziska Katterbach, President of Khiron Europe, said. “In Q1 2022, we expect to surpass our first 1 million CAD in revenues in the UK, and as we expand our portfolio, and increase our patient base, Khiron will consolidate its market leadership within the country.
“In 2021, Europe accounted for 33 per cent of Khiron’s medical cannabis revenues, at more than 1.5 million CAD. In Q1 2022 and beyond, Europe will represent over 50 per cent of Khiron’s cannabis revenues.”
MGC Pharma selling cannabis-based epilepsy drug into the UK through new distribution agreement
Australian firm MGC Pharmaceuticals reported sales of $625k in the first quarter of 2022 The majority of sales came from the Australian market, but the company said it is making further inroads into the European market.
In its March 2022 quarterly financial results, MGC Pharma highlighted a new strategic EU and UK distribution agreement for its epilepsy medication CannEpil and Dementia treatment CogniCann. The agreement was signed with “at home” medicine supplier, Sciencus Rare and will initially focus on four EU countries and the UK. An additional distribution partner, PCCA, will assist in selling Cann Epil into the UK.
In the report, MGC said it is “confident that these new European partners, along with a substantial presence in both Ireland and Australia, will contribute significantly to the MGC phytocannabinoid revenue stream for the remainder of 2022 and beyond”.
Following its listing on the London Stock Exchange in February 2021, MGC Pharma last month appointed London based CFO, Angela-Marie Graham. The appointment is part of its business strategy to establish a corporate office in the UK to support its European operations.
Aurora reports increased revenue in the UK market amidst net loss of $1 billion
Canada-based international cannabis company, Aurora Cannabis reported net revenue of $50.4 million in the period ending 31 March, down 17% sequentially but up 8 per cent compared to the prior year period.
Aurora said its international medical revenue hit $14.6 million, up 55 per cent year over year but down 26 per cent sequentially. The company is currently selling medical cannabis products in seven EU countries: Germany, Malta, Poland, Czech Republic, UK, Denmark and France.
The company stated that this decrease was due to the previous quarter including $8.5 million in net sales to Israel as part of a supply agreement. Excluding the Israeli market, its net international medical sales increased sequentially by 29 per cent, driven by markets including the UK, Germany and Poland.
In the UK, Aurora’s revenues increased by 60 per cent compared to last year’s first quarter. The company said “growth was driven by a rapid increase in patient numbers as more evidence has come out and more physicians prescribe cannabis”.
Despite growth in Europe, the firm reported a net loss of more than $1 billion, up by more than $160 million in the same quarter last year. It said the loss was primarily a result of increased pricing pressures and the continued impact of Covid-19. The company announced yesterday that it would be closing its Aurora Sky facility in Edmonton, Canada where it employs 13 per cent of its workforce.
Curaleaf sees small dip in revenue compared to Q4 2021 but celebrates year-on-year growth of 20 per cent
Curaleaf International, one of Europe’s major vertically integrated cannabis companies, reported a 2 per cent dip in revenue compared to the previous quarter but has seen a year on year growth of 20 per cent. Curaleaf produces two ranges of medical cannabis flower for patients in the UK.
Highlights from its first quarter of 2022 include the addition of 11 new retail dispensaries in the US, bringing its total number of locations to 1128, the acquisition of Arizona-based cannabis operator Bloom Dispensaries and the launch of a new product in Florida.
Following its entry into New Jersey’s recently legalised recreational cannabis market, Boris Jordan, Executive Chairman, said Curaleaf’s month-over-month growth from March has boosted confidence in its ability to hit full year revenue guidance of $1.4 billion to $1.5 billion.
“Given renewed optimism surrounding federal banking reform, a record-breaking 4/20, the exciting launch last month of New Jersey adult-use sales, and the prospect of New York following suit, 2022 is shaping up to be another milestone year,” Jordan said.
STENOCARE expands into the UK market: financial results indicate “a strong start for 2022”
Following its recent expansion into the UK medical cannabis market in February 2022, Danish producer of medical cannabis products STENOCARE reported that its net sales more than doubled compared to the fourth quarter of 2021.
In March, the company had three of its medical cannabis oil products approved for use in the UK. STENOCARE said it considers the current timing to be good given that industry analysts have projected that the UK will become one of Europe’s largest markets in five years. Delivery of the first products to the UK market is expected in the second quarter of 2022.
By the end of the year, the company said its expected sales run rate is set at 15 to 20 million DKK (approximately £1.7 to £2.3 million), up from total sales in 2021 of 1.9 million DKK. The majority of the uptake in sales is expected to materialise in Q3 and Q4 2022.
Expanding the full digitisation of COAs in the cannabis supply chain
Lucid Green has announced three new partnerships to support the digitisation of certificates of analysis (COA).
Lucid Green has partnered with with CannaSafe, Cannalysis, and LabLynx to bring COA digitisation to over 400 labs across the US.
The intelligent UPC platform, Lucid Green has entered into partnerships with the cannabis testing labs and lab information systems (LIMS), building on its existing partnerships with Confident Cannabis and Sonoma Lab Works.
A digital COA reveals much more information to the consumer and brands gain more insight into how their products are being consumed, enabling them to modify offerings to best suit the needs of their consumers.
Co-founder and CEO of Lucid Green, Larry Levy, commented: “Lucid Green is committed to increasing trust and transparency at every point of the cannabis supply chain and with consumers.
“By expanding our partnerships with cannabis testing lab systems, we are cutting time and money inefficiencies, while ultimately giving consumers additional information to allow them to have a better cannabis experience.
“This industry is not growing because stoners are smoking more weed. It’s growing because your spouse, neighbour, parents are beginning to see the benefits of using cannabis and want more information to feel confident about and inform their experience.”
Digital COAs that reflect full lab test results, including terpenes and cannabinoids, do not currently exist in the industry. As a result, point-of-sale, online menuing and ecommerce platforms are only receiving basic information that’s captured as part of the track and trace system.
This limited data set reinforces the current purchasing behaviour which is fixated on THC levels and basic classifications like Sativa, Indica or hybrid.
Lucid Green is also modernising the cannabis industry with LucidIDs – QR codes that make the cannabis supply chain more efficient by allowing for true truck-to-shelf inventory intake, reducing manual labor and human errors and eliminating data cleanliness issues.
Curaleaf appoints Matt Darin as new CEO
Curaleaf’s current CEO Joe Bayern will launch and run a new division of Curaleaf.
International provider of consumer cannabis products, Curaleaf has appointed Matt Darin as Chief Executive Officer as exiting CEO Joe Bayern prepares to launch and run a new division of Curaleaf.
Curaleaf has announced that Matt Darin has stepped into the role of Chief Executive Officer at the international cannabis company, effective yesterday (9 May). As a founder of the Chicago-based cannabis company Grassroots, Darin was a first entrant in some of the United States’ key cannabis markets, including Illinois and Pennsylvania. Since joining Curaleaf in July 2020, he led the central US region which the company said is its largest region by footprint and revenue. In 2021 he added the southeast region to his responsibilities, helping increase Curaleaf’s market share by 55%.
The announcement was made in conjunction with the company’s quarterly earnings call, during which Curaleaf reported first quarter revenue with year-over-year revenue growth of 20% to $313 million, and year-over-year adjusted EBITDA growth of 16% to $73 million with operating cash flow of $57 million.
“I firmly believe we are building the best team in cannabis and I’m energized and humbled to lead Curaleaf at this pivotal moment,” Darin said in a statement. “We’ve built the foundation to continue to be the industry leader for the long term with a focus on operational excellence in every aspect of our business. We are leveraging the power of our 131 highly productive dispensaries and the accelerating distribution of our brands in 2,200 wholesale accounts throughout the U.S. I’m grateful to the board for their confidence in me as we move to the next phase of our journey.”
Curaleaf’s current CEO Joe Bayern will launch and run a new division of Curaleaf developing a new consumer packaged goods (CPG) based business model while working closely with Darin during the transition period through the second quarter. Executive Charman Boris Jordan said the company is “incredibly grateful” for Bayern’s tenure as CEO stating that he brought the firm into a “new way of working and thinking strategically as a CPG company”.
“I’m thrilled to begin this new chapter with Curaleaf,” Bayern said. “Working with this team has been an amazing ride and we’re just getting started. I’m deeply grateful to Boris, Joe Lusardi, the board, and every team member at Curaleaf; I am proud of what we’ve built together, and I know that our new venture will be another strong asset in Curaleaf’s undisputed leadership of our exciting industry.”
Boris Jordan added: “This move positions us well on several fronts; we will benefit from Matt’s proven track record of building winning teams and cannabis industry experience, and Joe Bayern’s extensive experience driving CPG strategy to launch our new division. I have the utmost confidence that this change is the natural next step in Curaleaf’s journey as the leading global cannabis company serving both the adult use and health and wellness markets. In fact, we’ve never been more bullish about our future.”
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