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Money laundering challenges for cannabis businesses

What do cannabis businesses need to know when it comes to off-shore dealings and the risk of prosecution for proceeds of crime?

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Money laundering challenges for cannabis businesses

Wayne Atkinson, group partner at Collas Crill, discusses the complex criminal law surrounding cannabis businesses, and how the Bailiwick of Guernsey’s new position on proceeds of crime is attracting cannabis investors to the island. 

In Shakespeare’s Measure for Measure, Escalus, a lord, questions Pompey, a pimp, on his profession and asks him “is it a lawful trade?” Pompey replies, in a response beloved of well-read lawyers everywhere that it would be “If the law would allow it, sir.”

At its heart, this 400-year-old exchange and the question “is my trade lawful?”, is a question that will be a familiar one to many in the global cannabis industry, with recreational business becoming increasingly globally accepted in many nations but off the table in many others, and with varying levels of acceptable content and medical licensing requirements in different jurisdictions. This becomes even more of a challenge when one looks to use another jurisdiction, such as an offshore finance centre to assist with international structuring.

Almost everyone reading this will be familiar at some level with obligations to prevent money laundering and ensure people do not profit from the proceeds of crime. Of course, preventing this requires us to answer again the question: “What is a crime?” 

In many jurisdictions, laws relating to money laundering and the proceeds of crime attempt to impose their own standard on worldwide behaviour. Some jurisdictions for example talk (amongst other things) about conduct that constitutes a criminal offence under the laws of that jurisdiction, or which would constitute such an offence if it were to take place there. This is intended to ensure actions criminalised by particularly chaotic or despotic regimes in isolation do not get captured within the proceeds of crime regime. By taking this view, however, jurisdictions are imposing their own criminal system onto actions that are perfectly legal where they are committed, which is a tricky area, particularly with cannabis.

Imagine a situation where a business takes the best legal advice on offer in respect of its conduct in a specific country and is told everything is legal, but once that company pays a dividend to an investor in another jurisdiction that investor is considered to have “received the proceeds of crime”. This seems unduly harsh on the investor who has invested in what Pompey would call a “lawful trade”. Harsher still would be sanctions against that investor’s local bank, which failed to report that the monies it received for the investor were the proceeds of crime.  

Put in this situation, many financial services businesses feel they have no option but to throw the baby out with the bathwater and decline business which they feel is close to the line. The cost of cross-border legal analysis and the risk of sanction is simply too great to ignore. In some offshore jurisdictions, the position is even clearer – all cannabis business is off the table. 

Happily, recent legislative guidance from my own jurisdiction, Guernsey, has clarified our position and provided local service providers with the comfort they need to move forwards in this space. 

Last year, the Guernsey Policy and Resources Committee (effectively our equivalent of a Home Office), issued an Information Notice on Cannabis Cultivation and Production in Other Jurisdictions. That note helpfully clarified Guernsey’s own position, making clear that where drug-related conduct outside Guernsey generates proceeds, those proceeds only fall within the scope of our Drug Trafficking Law if the conduct that generated them is unlawful in the jurisdiction where it took place (subject to some limited exemptions not relevant to cannabis). 

This test of requiring an offence to have been committed in both jurisdictions is known as dual criminality and is obviously tremendously helpful in allowing for the proceeds of cannabis business (and other businesses involving potentially unlawful drugs such as psilocybin-producing fungi).

Going back to Pompey’s lawful trade, even this position can be confusing when one considers how complicated criminal law can be in and of itself. The same action could be lawful or unlawful depending upon one’s possession of a licence. Is it reasonable to expect offshore banks to distinguish between medicinal cannabis production in Canada, decriminalised cannabis production in California, hemp oil production in Suffolk and a hydroponic cannabis farm in an industrial part of London? All of these examples place a different legal analysis on the cultivation of plants of the genus Cannabis. 

Meanwhile florists in the UK frequently produce bouquets featuring the dried seed head of the opium poppy, Papaver somniferum, which is the same plant used to produce heroin in Afghanistan, but which has also been widely grown in Tasmania since the sixties for the lawful production of morphine and codeine. Gardeners in the UK can readily acquire opium poppy seed from major seed companies to beautify their borders and, by the way, that lemon and poppy seed muffin you are enjoying whilst you read this? Same poppy! The law is complicated.

To assist with this concern HM Procureur, Guernsey’s equivalent of an Attorney General, issued guidance making clear the Law Officers would only prosecute money laundering offences in respect of the proceeds of cannabis business where:

  1. That business is illegal in the foreign jurisdiction in which it is operated; and 
  2. The person involved had actual knowledge or suspicion that the proceeds of the Target Business are the proceeds of cultivation or production of cannabis-related activities which are unlawful where it occurs.

Whilst broader regulatory obligations in Guernsey still require businesses to make an effort to understand the legality of the business in question, this gives comfort around the risk of prosecution for an innocent mistake. 

The combination of these two clarifications means Guernsey’s institutions are increasingly open to cannabis business and we are already seeing investment funds formed in Guernsey specifically to invest into the sector. With Guernsey offering a well-regulated, efficient and easy-to-use company law regime ideally placed for outward investment globally, it is easy to see why this pragmatic and sensible guidance has led to it becoming the go-to offshore jurisdiction for businesses in the sector.

Wayne Atkinson
Group partner
Collas Crill

Politics & policy

Cross-party group established for recreational cannabis in Europe

#LegaliseitEP is focusing on human rights-based cannabis policy – “it is a matter of freedom”.

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Cross-party group established for recreational cannabis in Europe
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The group, made up of MEPs from five different parties, has formed to facilitate discussions around amending policy for the personal use of cannabis in Europe.

As countries such as Malta, Germany and Luxembourg have announced progressive amendments to cannabis policy, the informal interest group is supporting human rights-based policies for the personal use of cannabis.

The group is made up of the MEPs Luke Flanagan of Ireland, The Left; Mikuláš Peksa of the Czech Republic, Greens; Monica Semedo of Luxembourg, Renew; Cyrus Engerer of Malta, S&D; and, Dorian Rookmaker of The Netherlands, ECR.

Read more: Malta officially legalises cannabis in historic first for Europe

In an open letter to 705 members of the European Parliament, the group states that Member States should have the autonomy to create cannabis policy that reflects the needs and specificities of their society. 

As well as encouraging the MEPs to join the group, the open letter also calls for more information sharing between Member States regarding recreational cannabis and for fact-based discussion on cannabis, which the group says has been subject to misinformation for a long time.

The letter states: “Due to outdated and unpredictable patchwork of legislation, citizens across the EU are often finding themselves being forced to turn to the black market or even worse, imprisoned for being in possession of small amounts of cannabis for personal use. This does not reflect the level of freedom we have come to expect from living in Europe.

“We cannot deny that with new legislation coming forward within EU Member States, we are likely to find ourselves facing repercussions at an EU level. As MEPs, we want to build on this momentum and create a cross-party interest group within the European Parliament, where we will share best practices, talk to experts, organise hearings and conferences, as well as debate the situation of personal use of cannabis within the Union.”

Monica Semendo, of Luxembourg’s Renew, stated: “I am in favour of the legalisation of cannabis and cannabis products because it is a matter of freedom. 

“It’s a matter of one’s own choice. And if someone decides to consume cannabis, they should have access to a safe product. 

“We have to focus on transparent information, education programmes and risk reduction, especially for young adults.”

Cyrus Engerer of Malta’s S&D, stated: “People should have the right to take autonomous informed decisions about their lives, including whether or not they use cannabis. 

“Let’s talk basics. No one should go to jail over a joint. And now for some real talk – many people still are. 

“Where I come from – Malta – we are the first European country to fully legalise cannabis use Germany, and Luxembourg will soon follow it. It’s time that we talk about cannabis and our personal freedoms and rights.”

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Politics & policy

Greenrise welcomes cannabis policy developments in Germany

The company is preparing for the potential legalisation of adult-use cannabis in Germany.

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Greenrise welcomes cannabis policy developments in Germany
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Greenrise Global Brands has welcomed recent developments in Germany as it awaits guidelines from the German Government in the coming months.

Germany’s “traffic light” coalition made plans to legalise recreational cannabis official in November 2021 with the publication of its agreement. 

The coalition, which includes the Social Democratic Party of Germany (SPD), the Free Democratic Party (FDP) and The Greens, agreed to legalise the controlled distribution of cannabis to adults for “pleasure purposes”. With a focus on health-oriented cannabis policy, the development aims to move consumers away from the black market, control quality of products and ensure the protection of minors.

This year, five hearings are planned throughout to discuss the legislative process on the controlled supply of cannabis to adults for recreational purposes, with the first meeting being held in June, at the Federal Ministry of Health.

The Federal Government is anticipated to submit a draft law to Parliament (Bundestag) by the end of 2022.

Read more: Germany to begins consultations for cannabis legalisation

Greenrise Global, which has a wholly-owned medical cannabis subsidiary, AMP Alternative Medical Products GmbH that imports EU-GMP medical cannabis from within the European Union and elsewhere and has well-established relationships with pharmacies and clinics across Germany, has welcomed the development.

Supporter of the health benefits of cannabis and a keystone shareholder and director of Greenrise, as well as co-founder of CannaCare Health, Frank Otto, commented: “The consultation process shows that Germany is no longer talking about whether to legalise adult-use, but how. 

“We also believe that there will be a domino effect as European countries are watching very closely as Europe’s largest economy joins Canada and California in legalising cannabis for adult use.”

AMP Alternative Medical Products has reported that preliminary unaudited sales for first half year 2022 increased 14 per cent to €268,479 compared to sales of €236,399 during the first half year of 2021.

Greenrise acquired 51 per cent of CannaCare, which sells CBD wellness products through traditional retail channels in Germany and German-speaking markets in Europe, at the beginning of Q2. The company has reported that preliminary Q2 unaudited sales for CannaCare increased 187 per cent to €474,000 compared to Q1 2022 sales of €165,000.

Managing director of AMP and director of Greenrise, Dr Stefan Feuerstein, said: “The exceptional sales growth from CannaCare during the second quarter confirms our strategy of investing in CBD in addition to medical cannabis as we prepare for the potential legalisation of adult-use in Germany. 

“We look forward to the government providing guidelines in the coming months, which will provide certainty on how and when to position our businesses. 

“We expect pharmacies to play a significant role and are preparing our pharmacy customers for the possibility of selling adult-use products as well as soon as legislation is in effect. We also realigned our medical cannabis business by streamlining our medical sales team, offering more pharmaceutical cannabis products to doctors to prescribe and are preparing to import high-THC flowers from several European cultivators.”

CFO of CannaCare, Dr Tilman Spangenberg, commented: “Greenrise’s investment allowed CannaCare to launch its CBD products in three leading German drugstore chains, which dramatically increased sales in a very short period of time. 

“We expect the full impact of this sales channel to unfold in the third as well as fourth quarter. Our priorities for the remainder of this year are to grow CannaCare’s sales and operating cash flow positive by introducing new sales channels and adding additional drugstore chains.”

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Politics & policy

Switzerland’s amendment on medical cannabis comes into force

The Swiss government announced in June that rules for medical cannabis will be simplified.

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Switzerland’s amendment on medical cannabis comes into force
Home » News » Politics & policy » Money laundering challenges for cannabis businesses

Today, 1 August 2022, Switzerland’s amendments to its Narcotics Act come into force, which will allow patients in the country easier access to medical cannabis.

Switzerland has now joined a number of countries across Europe that are enabling patient access to cannabis by removing its ban on the medicine. 

Previously, Switzerland’s Federal Office of Public Health (FOPH) required exceptional approval for use of medical cannabis. This reduced patient access to cannabis as administrative processing was unable to keep up with the demand from potential patients.

Read more: Switzerland approves pilot for regulated cannabis sales

The use of medical cannabis will now be subject to regular control measures. The defined limit of at least 1.0% total THC content remains unchanged. 

Under the new amendments, medical prescriptions will no longer require an exceptional permit from the FOPH. Cannabis will be reallocated from Switzerland’s Narcotics List Ordinance list from List d, which is prohibited narcotics, to List a, which is all substances subject to control measures), along with preparations such as extracts, resins, oils and tinctures. 

Read more: Cannabis regulation changes across Switzerland and Luxembourg

Dronabinol and THC will now also be included List a “provided there is an intended medical purpose”.

The new amendment enables doctors to make the decision on whether a patient requires a medical cannabis prescription, speeding up the process of accessing the medicine for patients.  

The medicine will now enter Switzerland’s pharmaceutical system and controlled by the health authority SwissMedic, which will be taking over the role of the country’s Cannabis Agency for the cultivation of medical cannabis.

Under the amendments, there will be a two-stage authorisation procedure, which will require an establishment licence and an individual licence for the cultivation of medical cannabis. 

SwissMedic has stated that the handling of cannabis for non-medical purposes continues to be generally prohibited and will continue to require an exemption from the FOPH. 

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