CANNABIS LAW Risk & Regulatory Intervention - Robert Jappie - INCE
Risk & Regulatory Intervention
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.
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 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.
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 defence to regulatory intervention to assert that you have been following guidance provided by an established trade body.
Be well advised. Specialist legal advice can save you money in the long-term. For example, it’s much more economical to pay a lawyer to provide you with importation advice prior to your shipment entering the UK than it is to pay a lawyer to persuade the UKBA to release your seized shipment. It is a cliché, but in this industry, prevention really is better than cure.
Engage with other business owners and listen to their experiences. Reading industry articles and looking at the legislation/governmental guidance is helpful, but until you have been through regulatory intervention and understood the process first-hand then it is difficult to know what to expect. You will meet many business owners who have had such experiences. Substantial knowledge can be gained by listening to your competitors and contacts who active in the industry. Attend industry events (especially the Hemp & CBD Expo) as this is where you will gain the most knowledge.
Managing risk is important, but equally important is to change your mindset in relation to how you view regulatory intervention. I encourage my clients not to be afraid of regulatory intervention. Regulatory contact is inevitable and as additional regulation is introduced, contact with the regulators increases in likelihood. Rather that something to be in fear of, regulatory intervention should be viewed as an opportunity. Contact from the regulators should be used as an opportunity to engage directly in order to gain as much compliance information and guidance as possible.
If you receive a letter from the regulators alleging wrongdoing, do not panic. More often than not, the best course of action will be to respond in calm and clear terms with a view to opening a dialogue. If there is substance to their allegations, then you should apologise, confirm your intention to be compliant and ask for specific details on what aspects of your business require modification. Once you have made the required changes, you can update the regulator accordingly. You are now a compliant company with a good reputation in that regulator’s office. They will chalk up your engagement as a ‘win’ and they will move on.
If there is no substance to their allegations, then be prepared to push back and fight your corner. There is little in the way of established precedent in this industry. Everything we do is new and relatively untested. If you believe that a regulator is taking a heavy-handed and unwarranted approach, then don’t be afraid to tell them that. Take advice and make sure your position is conveyed in a respectful and consistent manner. You may find that the regulator becomes unsure of their own position in the face of your principled stance and will seek a compromise position.
This industry must be navigated with courage. If you already have an established business operating in the UK and Europe, then you have already shown tremendous courage in getting this far. If you are looking at the sector with a view to starting a business, then have the courage to take that next step. Be brave, be well advised, and be open to the opportunities that regulatory intervention presents.