The overseas legalised cannabis industry is growing fast — estimates suggest that the US cannabis industry will be worth over $75bn by 2030. Investment firms in the UK are keen to take full advantage of this growing market, but have found unexpected hurdles in their way.
For UK-based investors, investing in this industry carries the risk of committing the criminal offence of money laundering. It’s a legal position that is shrouded in confusion — creating the “cannabis conundrum”.
The Proceeds of Crime Act (POCA) 2002 “extra-territoriality” clause provides that the proceeds from any overseas activity should be considered in the UK to be the proceeds of crime, if that activity is a criminal offence in the UK carrying a prison sentence of 12 months or more.
The cultivation, production, and supply of cannabis is captured by this clause, meaning that handling the proceeds of this business activity — even though it is legal in the country where it is carried out, such as the US — is potentially money laundering.
The law is murky, and even the National Crime Agency (NCA) has stated that it is unclear if UK investment into US cannabis production is lawful or not. If the lead UK agency for prosecuting money laundering accepts that the position is not clear, what chance do investors have?
The UK legislative position is similar to the laws of most other EU member states. However, the landscape is changing as other governments recognise the huge economic potential from the fast-growing cannabis industry.
For example, Luxembourg plans to become the first European country to fully legalise recreational cannabis use by adults within the next 18 months. It follows that Luxembourg will become an attractive venue for investors looking to benefit from the cannabis industry, effectively opening up a multi-billion dollar investment sector for the country. But this industry is currently hindered in the UK.
As a lawyer, I have been involved in working closely with clients to find solutions enabling them to invest in cannabis safely in the context of the UK’s anti-money laundering regime. This typically involves using the suspicious activity reporting regime to seek consent from the NCA to enable their investments, free from the risk of committing money-laundering offences.
The response from the NCA is typically that it will neither give or refuse consent, as it is unclear if the activity is lawful, and suggests that investors seek legal advice on the position. While this implies consent under the POCA regime, the lack of clarity intensifies the cannabis conundrum. Clearly, it’s not practical for all UK investors to ask the NCA for consent to invest in cannabis, so urgent guidance is needed from the prosecuting authority.
The NCA is in a very difficult position, and this issue ultimately needs to be reviewed by parliament. However with more pressing matters on the agenda, parliament seems unlikely to consider this issue any time soon.
Therefore, better guidance is needed from the NCA — simply accepting the legal position as unclear is unsatisfactory. While not the complete solution, clearer guidance would be a welcome development to help UK investors.
Without this guidance, it is time for UK investors to seek judicial review of the NCA stance to force an urgent resolution. And without a resolution to the conundrum, the City and the UK’s financial sector misses out on a great opportunity to lead this massive growth area, all the while losing out to overseas markets.
Main image credit: Getty.