Jurisdictions around the world have adopted different positions in relation to the legality of the cultivation and production of cannabis or cannabis-related products, which ultimately affects whether investment structures can own those asset classes. There is a real "patchwork quilt" situation at present, though increasing numbers of jurisdictions are moving towards acceptance of medicinal cannabis products, even where legalising recreational cannabis production/use is considered a step too far.
The current legislation in the Bailiwick of Guernsey allows doctors to prescribe cannabis-based products which are manufactured to a pharmaceutical standard and used only for medical purposes. However, recently the Law Officers of the Crown have issued guidance which may indicate some development in the investment opportunities in the Bailiwick of Guernsey in respect of cannabis-related assets.
In February 2021, after a period of uncertainty, the Law Officers of the Crown issued guidance on prosecutions related to the cultivation and production of cannabis for recreational purposes in other jurisdictions (Guidance). This was issued in response to concerns from the finance industry and others following an information notice issued in June 2020 by the States of Guernsey Policy & Resources Committee (Notice).
The Notice stated that the cultivation and production of cannabis for recreational purposes is unlawful under the Misuse of Drugs (Bailiwick of Guernsey) Law, 1974, unless it is licensed by the Committee for Health and Social Care (which only recognises cannabis-based products for medicinal use). Any profits generated by an unlicensed activity in the Bailiwick of Guernsey would constitute 'proceeds of crime' under Guernsey's anti money laundering legislation. The Notice further stated that the Bailiwick's anti-money laundering framework does not, however, apply to the proceeds of cultivation or production of cannabis that is lawful in the place where it occurs. The principle of "dual criminality" means that in effect, monies generated from investment in overseas cannabis businesses would not constitute "proceeds of crime" under Guernsey's regime.
However, the Note made it clear that it did not constitute legal advice and there remained a degree of uncertainty over whether the interpretation of the interaction between the Misuse of Drugs legislation and the anti-money laundering legislation was sufficiently clear for those involved in the finance industry to rely on it. Given that criminal sanctions might follow, clarity was important. There were also concerns around situations where a business relationship or transaction involves an unidentified link to cannabis cultivation/production in a place where that is unlawful. Both of these questions were clarified in the Guidance, which noted that:
"For the avoidance of doubt, it is confirmed that where a business relationship or transaction involves the proceeds or production of cannabis that has only occurred in places where that is lawful, no money laundering prosecution will be brought in respect of the business relationship or transaction in question. Where it transpires that a business relationship or transaction has links to the cultivation or production of cannabis in a place where that is not lawful, no money laundering prosecution will be brought in respect of that business relationship or transaction if the evidence (including the surrounding circumstances) indicates that the Bailiwick parties concerned did not have actual knowledge or suspicion of the link".
This potentially opens the door for more investment opportunities to be structured via the Bailiwick in respect of cannabis businesses operating lawfully in their "home" jurisdictions. However, caution is still the watchword - the Notice reminds us that a lack of knowledge or suspicion by attributable to a failure to comply with the applicable due diligence measures in relation to a business relationship or transaction is in itself a criminal offence. The message is clear - do your homework before committing.
However, the GFSC has reiterated in response that neither the Notice nor the Guidance are binding legislation and neither constitute legal advice.
Whilst the Notice and Guidance do suggest a possible shift in the Bailiwick of Guernsey's position in relation to the burgeoning cannabis sector, the GFSC has said that (for now) the GFSC's position remains unchanged and that the GFSC would only be willing to consider applications for registration or authorisation of a collective investment scheme which invested in the following classes of cannabis-related investments:
- Synthetic or biosynthetic production of cannabinoids.
- Pharmaceutical research, development and sales.
- Medical research, development and sales.
- Production solely for the purposes of medical, pharmaceutical or wellness sectors.
- Wellness CBD products.
The GFSC would not consider collective investment schemes where one of the investment classes was the production, sale or marketing of recreational cannabis products.
The GFSC has scheduled a pre-planned review of its position for May 2021, but for now, the GFSC's position as regards investments funds remains unchanged.
This leaves the finance sector in a rather unsatisfactory position. The Law Officers have confirmed that those investing in structures where the cannabis production is lawful in the "home" jurisdiction will not be prosecuted (reinforcing the legal analysis that such investments are lawful), but the body responsible for licensing such structures locally (GFSC) is refusing to do so (save for limited circumstances listed above). Many of the cannabis businesses in places such as Canada also produce recreational cannabis. It would likely be very difficult to identify and "separate out" the strands of the business in order to satisfy the GFSC's requirements.
For the moment then, the door has been opened a little way, but there are still clear limits on what can be done locally. Watch this space for more in May.....
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