The legal cannabis market is increasingly big business. Whilst growth projections vary widely, they only point in one direction: up. The US legal cannabis market is projected by RBC Capital Markets to be worth $47 billion in annual sales within a decade.

A host of listed businesses have come to market, concentrated on the Toronto Stock Exchange – since Canada is further down the legalisation path than its southern neighbour. But unsurprisingly, the stocks’ performance closely tracks efforts from US federal lawmakers to relax cannabis policy.

Despite similar moves from some European countries, however, homegrown cannabis businesses remain thin on the ground in Europe. But there is good reason to think this might change. In Europe, with a population double that of the US and Canada, the cannabis market is expected to grow to €123 billion by 2028, according to Prohibition Partners in their 4th European Cannabis Report. 

In the US, 33 states have legalised the medical use of cannabis, and 10 have taken the further step to legalise recreational use. Canada fully legalised medical and recreational usage after passing the Cannabis Act 2018. With the benefits of medicinal use now well-established, particularly for analgesic and anticonvulsive treatments, some European nations, such as Germany (which formerly had some of the strictest drug control laws in Europe) , have also legalised medical use, and others following suit or contemplating it. But recreational usage remains a controversial area. 

We should not get too excited. Significant barriers remain in place that limit the growth of this market. Cannabis’s classification as a Schedule I and IV drug by the United Nations drug control treaties and analogous enacting legislation across Europe and the US has overlaid potential criminality, notwithstanding its legality in a particular jurisdiction.

In the US, whilst various States have legalised the production and use of medical/recreational cannabis, it remains illegal at a federal level. This overarching legislation causes problems: any cross border/state supply and trade falls under the auspices of federal law, and the continued illegality at federal level brings anti-money laundering legislation into play. Investment and the movement of funds from and to any cannabis related business could potentially be classified as the proceeds of (or promoting) an unlawful activity. 

As such, it is almost impossible for a cannabis-related business in the US to have a bank account. This clearly imposes significant limitations on the market. 

Whilst there has been no move to downgrade or declassify cannabis from the Controlled Substances Act, two proposed laws should significantly assist cannabis-related businesses. The Secure and Fair Enforcement Act (the SAFE Act) and the Strengthen the Tenth Amendment Through Entrusting States Act (the STATES Act) will allow depository institutions and financial institutions to provide financial services to cannabis-related institutions that are regulated under their relevant State laws. With this hurdle removed, the US market should significantly increase. 

In the EU, money laundering legislation also potentially acts as an obstacle to the growth of the cannabis market. In spite of movement by various member states to legalise medical cannabis, the recent Directive on Combating Money Laundering by Criminal Law 2018/1673 provides extraterritorial reach for money laundering activities. 

Under the Directive, an activity will be unlawful in a member state notwithstanding that it is perfectly legal in a third country – potentially causing huge issues for the growing EU cannabis sector similar to those currently faced by the US. 

The Directive is to be implemented by Member States by the end of 2020. This is a regressive step (from the point of view of legitimate medical cannabis activity) and runs counter to a recent resolution by the European Parliament to distinguish medical cannabis from other uses and boost research and innovation in the medical cannabis area. 

This follows on from the World Health Organisation calling for cannabis to be removed from Schedule IV of the UN drug control treaties. Time will tell how the sector responds to cooperate with the Directive, and if progress is unduly stifled. 

The cannabis market offers huge potential gains, particularly in the medicinal space, should legalisation efforts in Europe continue apace. However inconsistent legislative oversight, primarily in the money laundering arena, is hampering investment. 

The World Health Organisation has called for cannabis to be removed from Schedule IV - the most restrictive level of the UN drug control treaties. This would be a positive step to help lift the market out of the shadow of illegality. 

If that happens, the EU market stands to increase dramatically to meet its huge untapped potential. We could even see legal, listed cannabis producers coming to market, as in Canada and North America. Who are going to be the green-thumbed financiers poised to aid this new sector?