Germany has become the latest country to agree on a plan to legalise recreational cannabis use among adults in a move that presents significant opportunities for investments in the EU’s largest economy. The Federal Cabinet has approved the key points paper for the legalisation, however a concrete draft law will only be presented once it is clear that the EU has no legal objections. 

As it stands today, in the event of legalisation, corporates, financial institutions and individuals with connections to the UK who wish to invest or be involved in activity relating to German cannabis businesses will face a real obstacle in the form of the UK’s anti-money laundering legislation.

This is because, even where activity is legal in the jurisdiction where it took place, UK anti-money laundering legislation also takes into account whether it would have been a criminal offence if it took place in the UK (subject to some limited exceptions). Since activities in relation to recreational cannabis may give rise to criminal offences in the UK (and activities relating to medicinal cannabis remain strictly circumscribed) investments in legal German recreational cannabis (as well as medicinal cannabis) companies may give rise to criminal property under the UK anti-money laundering regime, and in particular the Proceeds of Crime Act 2002. In our experience of advising on similar issues in relation to Canada’s recent legalisation, there may also be money laundering complications in other jurisdictions, particularly those with anti-money laundering laws similar to the UK legislation.

The concern extends beyond those dealing directly with German cannabis-related businesses: UK entities which do not transact with those businesses, but, for example, receive funds by way of dividend or cash pooling from a group company which does so, and companies and individuals dealing with the shares of these companies, can also be caught. As a result, there are complex issues for banks, asset managers and other financial services firms receiving or being involved in the movement of funds from individual investors or owners of cannabis-related businesses which must be considered. The UK, in contrast to other jurisdictions such as Canada, Malta and Germany, does not look set to reconsider the legalisation of recreational cannabis.

For more discussion of these issues, please see our post following Canada’s legislation of recreational Cannabis in 2018 here .