The UK’s financial regulator, the Financial Conduct Authority (FCA), has taken the first step to allow medical cannabis firms to float on the stock market.

The new announcement from the FCA comes following queries from cannabis-related companies interested in listing on the London Stock Exchange.

The FCA has said that where a company involved in the supply of medical cannabis products is based in the UK it can be admitted to the Official List if “the company has the appropriate Home Office licences for their activities where they are required”.  A company’s shares can only be traded on London Stock Exchange’s Main Market if they are admitted to the Official List.

Despite a change in the rules for UK medical cannabis companies, the regulator’s response has confirmed that businesses that grow and sell recreational cannabis overseas in countries where it is legal to do so, such as Canada and some US states, cannot list on the LSE due to the Proceeds of Crime Act (PoCA).

This includes any income from the sale of cannabis and cannabis oil outside the UK, which could constitute “criminal property”, according to the FCA.

This could exclude overseas-licensed medicinal cannabis companies and cannabis oil companies from the Official List unless the FCA is satisfied that PoCA does not apply and they otherwise satisfy the criteria for listing.

On this basis, before an overseas medical cannabis company can be floated on the LSE, they will need to be reviewed by the FCA to satisfy that they do not pose a PoCA risk.

The regulator must also be satisfied that the company’s activities would be legal if carried out in the UK and they will need to “understand the legal basis of the company’s overseas activities, for example, the nature of the local licensing and the licences the company holds.”

This rule could apply to UK-based medical cannabis companies where they also have overseas activities.

While the rules around the admission of cannabis firms to the Official List are complex and subject to a consultation, this decision marks an important step for many businesses in the industry in both legitimising their trade and opening new opportunities for investment.

Ricardo Geada, Head of The Cannabis & Regulatory Team at Mackrell.Solicitors, said: “This is an important development for the cannabis industry both in the UK and around the world. The London Stock Exchange is a prestigious market that conveys a degree of credibility on businesses that are allowed to float on it.

“This news will be welcomed by the businesses themselves, as well as many investors who have been keen to buy into this fast-developing sector via an authorised and regulated stock market.”

Keith Provins, Partner and Head of the Corporate Team at Mackrell.Solicitors said: “The clarification by the FCA of its position regarding the listing of medical cannabis companies is welcome news for those companies that may be looking to access the main capital market in one of the largest global financial markets and for investors.”