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n o i t n e v r e t n I y r o Regulat Cannabis is a risk sector. Like it or not, anyone operating in this industry has some appetite for commercial risk. This risk can be controlled without compromising on commercial success. Robert Jappie explains how regulatory intervention can not only be managed, but also be used to improve your business prospects. Risk and Reward Cannabis is a risk sector. Like it or not, anyone operating in this industry has some appetite for commercial risk. The risk is present because Cannabis in the UK and Europe is a nascent industry. It is new, it is exciting, and it is growing rapidly. These qualities mean that the potential rewards for successful businesses are enormous. The predicted growth for the global legal cannabis market is impressive. This opportunity for substantial reward is why we accept the commercial risk, but that doesn’t mean that we bear it easily. The risk is one of regulatory intervention. Such intervention can be frightening. The letter your business might receive from a domestic regulatory body is usually intended to scare, and even intimidate. However, if managed correctly, such regulatory interventions can be turned into an opportunity for your business to improve its compliance and develop a longstanding, positive relationship with the relevant regulators.
The Regulators Who are the regulators that have oversight of the UK cannabis sector? If you’re engaged in cultivation activities, or in handling controlled substances then you will be familiar with the Home Office Drug Licence Unit (“DLU”). This department of the Home Office deals with licencing applications, monitoring and
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enforcement. Anyone who has had contact with the DLU will know that they are difficult to deal with at the best of times. They can take several weeks to respond to enquiries, and the licence application process moves slowly as a result. Post licence intervention can be sudden and heavy-handed. Note the Hempen enforcement action last year where the Home Office declined to renew their hemp cultivation licence. An intervention of that nature can be devastating to a business, and therefore the risk of such intervention must be carefully managed. If you have a CBD business and you are importing raw material or finished products from overseas then it might be the UK Border Agency (“UKBA”) that is causing you to lose sleep. Seized shipments are a regular occurrence and securing their release, once seized, is challenging. Any suspicion that your shipment has in excess of the permitted THC content will result in seizure, and it can be months before you might be able to persuade the UKBA otherwise. The Novel Food issue continues to hang over the sector like a dark cloud and although the Food Standards Agency (“FSA”) has yet to announce any formal enforcement policy, local council Trading Standards officers have been intervening on the novel food issue. If you are selling ingestible products which contain CBD in its isolated form, then you are at risk of intervention as isolate is indisputably a novel food. A visit from trading standards can be any business owner’s worst nightmare. What about the claims you make regarding your products? Consumers are buying CBD products for their medical and health benefits. However, it is prohibited to make any medicinal claims about
your products as they are not licensed as medications. I have seen several interventions by the Medicines and Healthcare Regulatory Authority (“MHRA”) in respect of companies making medical claims. The MHRA takes a hard-line stance on such issues and their interventions are forceful. There has been an increase in advertising of CBD products. Buses, Magazines, Billboards and on TV, several brands are being increasingly brave in respect of where they advertise, pushing their products into the public consciousness. There has been pushback from the Advertising Standards Agency (“ASA”) in relation to these campaigns and I suspect many companies will have been dissuaded from pursuing these mainstream marketing channels as a result.
Managing Risk In my opinion, it is not possible to operate successfully (from a commercial perspective) in the Cannabis sector on a zero-risk profile. If you have no appetite for risk whatsoever then I’d respectfully suggest that this industry isn’t for you. However, there are several strategies that you can employ to reduce the risk of regulatory intervention. Join a recognised trade organisation. Yes, the fees can be annoying, but there is an inherent strength in numbers. As well as providing up to date guidance and compliance advice to members, an established trade body will often be well connected with the relevant domestic regulators, meaning that they will be the first to know when regulatory change or enforcement is in the pipeline. It can be a very powerful
