‘Investing in UK Industrial Hemp & CBD: What’s Holding Back a Multi-Billion Pound Industry?’ Minutes from the APPG meeting 12.09.23

Co chair Crispin Blunt MP welcomes everyone to the meeting and introduces the first speaker, Will Muecke, and his talk “Investing in UK industrial hemp and CBD: What’s holding back a multibillion pound industry”

William Muecke, Blunt MP explains, is Currently Co-founder and CIO, Artemis Growth Partners. He was previously: MD & Global co-head, Healthcare services sector, Healthcare investment banking group, Goldman Sachs (NYC); Global co-head, Mobile data sector; Communications, Media & Entertainment group, Goldman Sachs (San Fran); and Leveraged finance senior officer at Donaldson, Lufkin & Jenrette (San Fran).

Muecke spent 30 years in finance – the first 15 as an investment banker, and the last 15 as a direct investor, first in private equity and emerging markets, and the last five years of private equity in cannabis.

Muecke says: 

“Artemis Growth formed in 2017 with its entire mandate of 100% investing in cannabis. The business is invested across 37 companies and in all the legal jurisdictions that you can likely think of in cannabis. For us, that means North America, Latin America and the Caribbean and then here in Europe we're invested in Germany, Denmark, France, Poland. And we have a company here in the UK. We have built a reputation for quality, transparency and trust and positive investment results. We are one of the thought leaders in the space and are ranked as one of the top firms in our in our sector.

The reason we invested in cannabis is because the growth market is significant, and the size of the market is large. Last year, legal revenues in the cannabis trade globally topped $30billion worldwide. Expected revenues for 2023 and the legal cannabis trade is expected to cap over 40 billion US. The five-year projected horizon shows cannabis increasing to a market size of 75 to $100 billion in annual revenues and growing. That's the 2028 period.

While early investment focus globally has been on North America. Europe has emerged really as the next centre of cannabis and the most attractive area to watch globally. Europe alone has today 23 countries that have legal medical cannabis programmes (that include the UK).

The wealth creation opportunity for cannabis is to take its place among its peers of pharma, alcohol and tobacco, consumer products and wellness.

Cannabis at its core is an agricultural crop, but it is a branded specialty generic pharmaceutical. On the hemp side, hemp as an industry is disrupted to so many different sectors, be that pulp and paper, fibre and textiles, biofuels, aerospace composites, health and wellness.

The corollary to all of this is the innumerable jobs and taxes that have already been generated in the legal cannabis trade.

As an analogue, the US cannabis jobs last year topped 428,000 permanent jobs, and those jobs are being added at a clip of 100,000 jobs per year.

The total cumulative tax revenue for the legal cannabis trade in the US has now eclipsed $15 billion. Last year alone, in 2022, the US total direct tax revenues coming off the cannabis trade were $3.8 billion. California alone accounted for 1 billion of that statistic.

In 2023 the expected tax revenues will pass $4 billion. If you map those same metrics to the UK, we are potentially looking at a market that has 700,000 permanent jobs and an annual tax revenue eclipsing £5.5 billion.

Now, in every new industry, there are growing pains, and in particular here we have the unglamorous legislative and regulatory side of things. Structural regulatory and legal impediments, unfortunately, have slowed development of a of a potentially robust cannabis industry here in the UK to a near standstill. In practise what that means for operators is there is a lack of resources and a lack of access to capital and solutions. There is limited access to R&D funding or grants, limited access for vendor sales because the vendors supplying cannabis trade are subject to the same Proceeds of Crime (POCA) laws as investors. So that means everything from farming equipment to construction services, advisory and legal support is scarce.

Banking is really a ‘whack-a-mole’ experience of accounts opening (if you can get one) and then closing. There is no lending for capital projects. There's no availability of working lines of capital for cash flow. And there is limited to no back office and accounting support because what is available is outrageously expensive. And that's again due to the same legal exposure under POCA. And so the vendor service providers are few and far between.

Within the financial world, we have a very important role to play in building the industry, but we also are restricted because of the local laws. It’s critical for us as investors to have an active listing market for IPOs.

At one point in time, Canada was seen as the torchbearer of being a capital market centre for the world. Since Canada has really fallen away, there has been no emergence of a single centre as a hub for Cannabis financial trade. I believe that London and the UK in general is perfectly poised to be that lead financial global hub for cannabis.

What it means, however, is that we, the investors, need to be able to run and raise funds and our operating businesses need to be able to operate here in the UK without encumbrances.

It's important that the UK is a viable centre for fundraising – that means capital from individuals, institutions and corporates. And it's important that the UK develop a financial ecosystem that provides the supporting services just like any other financial industry.

What it really means for this body, is that the legislative updates to POCA are actually quite simple. It's really, as I understand, just a few paragraphs that need to be written so that cannabis can be welcomed in just as alcohol has been welcomed in under POCA.

If we make these changes, we can get London and the UK to be that financial hub. It's key again that we have language in the amendment to POCA that allows for listings, so the next stop really should be to speak to the exchanges.

It's the UK government's role to interview these exchanges, to understand what's required and then, as the UK government does very well, decide what is best for society. Government chooses and balances what is needed, but all parts of the industry are here in the room today to make these changes.

And in order to unlock this potential, we work together to develop a multigenerational job growth creation and wealth creation opportunity that this country sorely needs. It’s really inexcusable not to.

Thank you very much.”

Crispin Blunt thanks Will Muecke and open the discussion to the floor for questions.

Lydia Smith, from what was previously known as the National Institute of Horticultural Botany, asks about legislative framework, and asks if we should be looking to copy the EU and the changes that have occurred there (from farming to banking).

Will Muecke says he absolutely agrees. “In Germany,” he says, “we expect that by the end of this year we will have a codified set of regulations around what cannabis as a medicinal should look like and what the ancillary programmes and CBD and hemp should look like as well. It means that likely in the early part of 2024 that cannabis will be fully decriminalised. It will move from a narcotic status to a non-narcotic status.”

Muecke than goes on to talk about the US:

“The US is now talking about also similarly rescheduling cannabis to a non-narcotic status. That alone would unleash a tremendous wall of money waiting to come into cannabis that cannot come in because of the current laws. So every financial institution would love to play in this field. In an industry will grow at 25% a year for the next five years and with the simplest investment thesis in the world, which is moving from an already embedded demand basis in an illegal market to a to a legal market. But you can't move that money in because of the current laws. So if we just took a page from Europe and looked at what they were doing, it's a very simple move to say that we can regulate this product as any other regulated product, but on a on non-narcotic basis and unleash a tremendous amount of potential for jobs and for tax.”

Tony Reeves, EIHA, states that the big blocker for regulators is – how do you know it’s safe? Even though we have the research data of 62,000 people from 60 countries, backed by the scientists, that proves it is he says.

Muecke agrees, saying that the data is available (citing data assembled in Israel 40 years ago). He says Pharma would love to invest in this space, but again, going back to they won't do a clinical trial because they won't make the spend because they're again trapped by POCA. This is an entire field of research that has not been tapped because of our laws, and we're talking about public health, he says.

Muecke adds that he lives here in the UK with his family. But If we can't get the laws to align with what Artemis, his business is, his business is going to take me somewhere else. And that, he says, is a shame for the industry.

Co-Chair Ronnie Cowan MP speaks, saying the Home Office mindset is that ‘drugs are bad’, and they cannot shift that and see the benefits from them in a middle position or from growing hemp with very limited levels of THC. That is the reality.”

Crispin Blunt MP asks of all those in the meeting “If you don't have a relationship with your member of Parliament and you haven’t explained to them why the regulatory framework in which we are operating is utterly vital to your business, and that you expect them to get across it and understand it and to then advocate for the necessary regulatory change, then you are betraying your own business and also betraying the interests of all of us collectively here because we, we need the numbers. We need MPs who have been engaged eyeball to eyeball with someone whose future and the people who work for them and work with them depends on her or him actually getting engaged and advocating change to government.”

Patrick Gillet from Hempen asks if rescheduling of cannabis in general would get rid of the need to amend POCA. And is there a difference between legalisation and decriminalisation of cannabis for POCA.

Nick Morland of Tenacious Labs, and secretariat to the APPG says: “The issue with POCA is that if you don’t have a definition of what is allowed, then it’s not allowed. in Jersey, which was signed off by the Home Office, they changed the law to include what was allowed in for their process of crime legislation. It also allows international companies to be headquartered there and operate legally worthwhile, which is the big difference.

He adds “Business needs the ability to grow in the field to generate the jobs and get the money in. The commercial world is quite patient. As long as people feel as there’s a degree of engagement, sensible and practical, they they’ll bend over backwards to do what politicians say. The politicians are the boss in this space.”

He goes on to say “The problem we and everyone has currently is getting started. Without having bank accounts closed down. So we're the secretariat to this group, which we're very grateful for, but we've just shifted our global headquarters to Jersey from the UK, even though both myself and my business partner are UK resident. We'd rather do it here.”

He goes on: “London's got a long track record of being a centre for private equity. We've got every advantage. As long as we don’t wait for someone else to come and do this first. London just needs to be the place you can do business from. The industry needs to run.”

Nick then asks that Ronnie and Crispin make a deputation of whoever volunteers from here to go see the Stock exchange and gain their support and ask what they need in order to help kick start this industry, to get it running. To ask what’s holding them back.

“This is not a tricky space to make a business case for, but at the moment we can't do it, and we're moving offshore, which is stupid,” says Nick.

Marika Graham-Woods from the CTA makes the point that there is a total disconnect in the CBD industry. At the moment regulations for recommended upper THC levels in the plant have not been set. In the USA we’ve got 0.3%, in Europe from 0.2 to 1%. New Zealand have just adopted 0.5% of THC in oil and 50 mcg per kilo in the solid food. It is time, she says, for somebody to make what will probably be a political decision to suit the UK industry. Until that is done, the industry will continue to die on its feet.

Will Muecke asks for the next steps for at least on the capital side, to be working with the exchanges. “If we can have a meeting with the exchanges, understand what their needs are, filter that back through what needs to be put into POCA, we have a window to open up what I think is a huge revenue opportunity – because I can start listing companies here in London, for global investment. I can raise capital, listed and private, for global investment. I can do things that I cannot do today. We're a $400 million fund today, but it would be a $4 billion fund, and you rinse and repeat that for multiple people like me, and you have a very vibrant industry home here in the UK. That's the help that I would like, and I'd like to see that made.”

Ronnie Cowan MP asks if that is a vibrant financial industry, or is that a vibrant agricultural industry? “Because I want to see that money invested here in the UK,” he says. “For people who can actually grow the product and consume the product here in the UK. I don't want to see UK companies investing across the globe, and we're here just picking up the pieces.

Muecke apologies and states that cannabis is an agricultural commodity that could be home here in the UK.

Ronnie Cowan commented he’s been in touch with the King’s people ion Scotland, regarding growing hemp on the King 's land, using the king's money for the betterment of the common people, which is what it was designed for in the first place. “If he leads by example, believe you me, people want to follow.”

There then follows some discussion from APPG participants, including lawyer Ricardo Gaeda, on the difficulties that POCA means to corporates and individuals regarding paying and receiving of dividends. Muecke says that POCA is constraining a huge industrial and commercial engine.

Nick Morland highlights that even corporate exemption doesn’t work. An exemption won’t clear you anywhere in the world from whichever country you're in. Exemptions won’t work instead of POCA.

Crispin Blunt now introduces Tony Reeves, who is the board director and UK representative of the European Industrial Hemp Association EIHA for the second presentation.

Tony begins by thanking Crispin. He made the following points:

“Since the ACMD review was commissioned by Kit Malthouse, MP in January 2021, a new, science-based and credible study has become available that should be urgently reviewed by the ACMD and reflected in a revised set of recommendations to government. Neglecting to undertake this review and incorporation of this critical new data into an updated ACMD report will not only prevent millions of UK consumers accessing cannabinoid-containing hemp products but also considerably damage the broader hemp sector.

EIHA’s response to the ACMD’s report issued in February 2022 (attached) addressed many key points and provided suggestions on how best to assure consumer safety whilst preserving consumer choice and supporting the UK industry. In its conclusion EIHA informed the ACMD that new studies would soon be presented as part of a comprehensive submission to the FSA in the framework of the Novel Food applications.

We are pleased to report that the toxicological studies on both CBD isolate and of more significance ‘full-spectrum’ CBD supplements have now been completed; full-spectrum extracts contain trace levels of THC and hence are particularly relevant to this discussion.

Clearly, the ACMD review was specifically focused on recommending appropriate levels of THC in CBD consumer products, based on the data available at that time. The studies commissioned by EIHA were partially driven by the recognition that the existing data was not sufficiently robust and certainly not of the standard required by the FSA. These new studies were performed to the highest possible pharmacological standards within a fully accredited laboratory; Eurofins is one of the world’s leading analytical services group employing over 62,000 people in 61 countries. The results unequivocally support an ADI (Acceptable Daily Intake) * of 0.35mg THC/day (the no observable effect level). When extrapolated into consumer consumption guidance on CBD supplement products, this level will ensure consumer choice is preserved whilst enabling the UK CBD sector to flourish.

These findings were presented to the FSA team in July and shared with scientists in 64 universities across the world. Just to add, EIHA is about to commence the largest human trial ever undertaken on THC with 400 participants. It is widely acknowledged that the ADI derived from these studies will be significantly higher than the level already validated, with an expectation of 0.49mg THC/day (this is the same level that has been applied in Switzerland for over 30 years).

As the body representing the majority of the UK sector, we ask that this new, credible and high-quality data is incorporated by the ACMD into a revised version of their recommendation to the Home Office. To that end, I have provided an overview of these results, and we are prepared to provide the full data set to the Home Office/ACMD upon request and signature of an NDA.”

At this point Crispin Blunt interjects that ‘future embarrassment’, an idea mooted by Tony Reeves, is in his view not going to work. He believes we need positive reinforcement from someone who is going to grasp the opportunity, who is going to pull together the different government deps and different regulatory bodies to actually work together and harness and enable.

“I think the investment banker who is the prime minister of the United Kingdom, has an approach to policy that will be inclined to take advantage of opportunities if he and his team are convinced that they that must be. If he could be convinced of that case and then for the centre to drive the government and the regulatory agencies to put their shoulder to the wheel. Convince the administration to be the force of change.”

Crispin invites Lydia Smith, to speak. Lydia points out that she is heading up a multimillion-pound project which has been funded by DEFRA. Hemp is one of crops that they’re considering. But on asking the Home office several weeks ago whether she could take some material from the farmer sites in order to analyse them, they said, “Oh, you have to put it in writing”. Since then, they have ignored her. Lydia’s point is that the Home Office is probably not ideal in terms of dealing with this as a crop as an industry. “If we're saying that the advances need to be science, they are not the part of government that is actually able to deal with research and understand what that actually entails,” she says.

Crispin says that if the response of these bureaucrats is to run for cover and to look for safety and to find a reason to say no, that has to be exposed. “We can't complain about regulators not being brave if we're not brave ourselves.”

David from the CIC, makes the point that unless we have investment into huge amounts of infrastructure from the industrial side of things, we miss the opportunity for the 26 million houses retrofitted with green insulation that the government is demanding. All that will then get done with petro chemical products. The industry needs the investment.

And of course, we prefer that those insulation products and if we could have the larger in invested into by the likes of William And so but they're not going to do that.

Patrick Gillet from Hempen suggests that if a brave farmer out there were to take a bit of direct action, take the risk, it will force the point and bring it to public attention – with a bit of publicity. They need to be big though because the risks are considerable.

Nick Morland says that the commercial world understands this stuff, but wont touch it if it means that connected  individuals are targeted, have bank accounts deleted, and can no longer pay their rent or get on the underground. That’s what's killing us.

Nick Morland goes on to say that the civil servants are privately all for it, but they need a Cabinet minister to tell them to do it. And with Crispin Blunt and Ronnie Cowan’s blessing for the secretariat and Artemis Growth approaching the London Stock Exchange for their endorsement, that is is the best way forward for pushing the cabinet ministers to take notice.   

Crispin makes the point that using an educational establishment to help front this up, so it’s not just a commercial enterprise, might be very effective.

He then suggests the next meeting be held in late November, before the meeting ends.