Although there is significant momentum in the medical cannabis sector, Jonathan Deverill, partner at DAC Beachcroft, looks at how the current legislation protects investors
Global interest in medical cannabis is booming, with annual sales estimated to be at between £33.6bn and £62bn by 2025. This growth trajectory is forecast to continue, despite the inevitable hurdles raised by the Covid-19 pandemic and resulting global recession.
The November 2018 change to UK law on medical cannabis has marked the UK sector as ripe for investment, and this has been welcomed by patients, campaign groups and industry. However, other highly respected voices, including UK regulators and the medical establishment, urge caution; they want to see tangible evidence of safety and efficacy in the form of large-scale clinical trials, supported by robust regulation before the market is liberalised.
While the UK medical cannabis market is embryonic, production and research is a global growth industry, with investors anticipating significant returns. There are, however, a number of issues that stand in the way of immediate growth, including concern that there is not enough research into the longerterm effects of cannabis-based medicinal products (CBMPs).
Barry Miller, a full-time NHS consultant in pain medicine, was one of twelve professionals interviewed for DAC Beachcroft’s report, and he says there are legitimate concerns. ‘We don’t know if in 20 years down the line people will develop some unusual disease or cancer,’ he says. ‘These things are not uncommon – look at Thalidomide and Vioxx [which caused heart attacks and strokes]. Maybe medical cannabis will turn out to be a valuable addition to pain medicine therapeutics, but until we have solid evidence of safety, there are real concerns.’
The Royal College of Psychiatrists’ position paper calls for more Randomised Control Trials (RCTs), and backs calls by the research community for the Misuse of Drugs Act 1971 (MDA) to be amended so clinical trials of all types of cannabis can be carried out without a Home Office licence, of which the College says it ‘is costly and time-intensive to obtain’. It also wants guidance on how to prescribe CBMPs more effectively and safely – a point which was backed by those interviewees in the report who advocate caution.
WE DON’T KNOW IF IN 20 YEARS DOWN THE LINE PEOPLE WILL DEVELOP SOME UNUSUAL DISEASE… THESE THINGS ARE NOT UNCOMMON – LOOK AT THALIDOMIDE
Others take a different view.
Hannah Deacon became a passionate advocate of CBMPs following her successful fight to get NHS treatment for her eight-year-old son, Alfie Dingley. Hannah also contributed to the report and she says medical cannabis suffers as a result of the demonisation of cannabis in general.
‘We must accept medical cannabis as exceptional as it does not fit into a pharmaceutical model. Until this is accepted and a new framework is developed and research is carried out based on a real-world data approach, we will struggle to move forward. If patients are currently on private prescriptions of medical cannabis and they show huge improvement, NHS doctors should be supported through more balanced guidance from NICE and feel able to prescribe, currently, that is not happening.’
George McBride was another one of the report’s interviewees and is the chief executive of Hanway Associates, a strategic consultant working with the cannabis industry.
McBride says there is a ‘public health imperative’ to ensure access to safer and cheaper domestically grown products. Unlike other countries that have reformed their laws, he says the UK is trying to shoehorn medical cannabis into its ‘existing model of healthcare through existing pharmaceutical standards and healthcare channels – that is not what other countries have done’.
And he is one of many to back calls for reassurances that the UK Proceeds of Crime Act 2002 (POCA) would not apply to legitimate UK firms doing business with legitimate cannabis companies abroad.
While the UK medical cannabis industry is still at an early stage compared to some other countries, it has nevertheless caught the attention of some in the investment community, who believe it offers a substantial potential opportunity.
Marcus Stuttard, head of AIM and UK primary markets at London Stock Exchange, was interviewed for the report and says that existing pipeline companies on AIM, London Stock Exchange’s market for dynamic high growth and medium-size companies, include businesses that are active in the CBD and wellness space, and companies investing in businesses that are producing pharmaceuticals or providing infrastructure such as hydroponics or greenhouses.
To be admitted onto AIM, companies must undergo a vetting process managed by a nominated advisor, known as a Nomad, who looks closely at the business model to make sure there is nothing in it that falls foul of POCA or any other legislative requirements, while also taking into account the overriding requirement that any applicant must be appropriate for AIM.
POCA was not drafted with the modern cannabis industry in mind and deliberately couched in broad terms, which has created uncertainty for investors who could, in theory, face prosecution under POCA for receiving dividends or interest payments from an overseas company, even though the operations of that company are entirely lawful in its home country.
The FCA has, however, attempted to address this issue by setting out its approach to listings of cannabis-related businesses (18 September 2020). This clarity has been broadly welcomed by the sector and it will be interesting to see what impact it has on investment in the longer term.
Reading between the lines, broader investor protection concerns would also seem to be a motivation.
In Canada, some people made a lot of money during the greenrush, but since
Canada’s recreational cannabis legalisation in October 2018, the share prices of Canadian cannabis companies have typically fallen by a significant amount, with many investors losing money, an experience UK regulators do not wish to see repeated on stock markets here.
Another contributor to the report is Melissa Sturgess, chief executive of UK company Ananda Developments, which is listed on London’s AQSE Growth Market.
She agrees that UK investors and entrepreneurs are cautious and that POCA is one factor. Nevertheless, the company has spent more than a year putting together the case for an application to the Home Office to grow medical cannabis initially for research and development purposes, and ultimately for commercial supply to the UK medical cannabis sector and internationally. ‘With the expertise, we will gain growing and stabilising 65 strains of cannabis at scale, when the time comes for cannabis to be grown meaningfully in the UK, we will be one of the turnkey companies,’ Sturgess said.
Another of the report’s contributors, Nick Tulloch, director at Fetlar Capital, says that the rapid expansion of the cannabidiol market has thrown up some high-quality products, but adds that ‘There’s also a dark side of people literally creating cannabidiol products in their kitchens where not only the composition of each product may be different but some of the ingredients are undesirable.’
Tulloch calls for the equivalent of a kitemark on CBD products so that consumers know they can be trusted. ‘More regulation will do everyone good and take out the people that are doing things they shouldn’t. It would also make consumers more confident and
probably push prices up a bit, but at least everyone would know products are what they claim to be.’
An investor goldmine?
While some market analysts believe that the UK medicinal cannabis market could be an investor goldmine, others feel the application of the UK Proceeds of Crime Act 2002 to the international medical cannabis industry needs to be clarified, to reassure investors they won’t face criminal action.
And, to protect investors and entrepreneurs, UK financial regulators are taking broader investor protection concerns seriously, even if others would like to see much greater liberalisation more quickly.
Overseas observers interviewed for the report say the UK also needs to make it easier for clinicians to prescribe on the NHS, and to free up legislation and bureaucracy to make investment, import and research easier.
Overall, it feels as if the UK medical cannabis industry has already come a long way since January 2018 and has picked up some significant momentum. It is perhaps inevitable that, at this still relatively early stage, there are differences of opinion between those who wish to make cannabis-based medicinal products more widely available or open up investment opportunities more quickly, on the one hand, and those who urge greater caution or wish to see more clinical research first, on the other. And, it must not be forgotten, there are highly respected bodies of opinion on each side.
It will be fascinating to look back in five years from now and see how the British medical cannabis industry has developed.