April 6, 2021

Expert Interview: Dylan Kennett and Rahool Sarjua of DLA Piper

9min read

An interview with associates of DLA Piper a global law firm with lawyers located in more than 40 countries.

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Hi Dylan & Rahool, thanks for taking the time to speak with us again. For readers who aren’t familiar with you and DLA Piper, would you mind letting us know who you and DLA Piper are?

Dylan: Thanks so much for involving us again, always delighted to be working with Prohibition Partners. By way of background, I’m a corporate lawyer in the London office of DLA Piper. I predominantly focus on venture capital, private equity, M&A and taking companies into new jurisdictions as they go ‘global’.

Rahool: Yes, thank you for having us. I’m in DLA Piper’s London office focussing on intellectual property (both contentious and non-contentious) across a range of industries, but also work on commercial and regulatory issues affecting life science and cannabis businesses.

Dylan: DLA Piper is a global business law firm across 40 countries, with 90 offices globally. We are full-service in each of those jurisdictions we operate in and act for companies, investors and other stakeholders across the entire corporate life-cycle. By full-service it means we do everything from corporate, employment, intellectual property and litigation, just to name a few!

What has DLA Piper been doing in the cannabis space?

Dylan: We have been involved in the cannabis sector for some time now. Our Canadian practice traditionally led in this area, having been involved from medical to adult-use in the country. I hail from Canada as well, but am an English

qualified lawyer. In 2018 it was clear to us that a number of companies were looking to expand globally as capital flowed into this nascent sector and regulations started to liberalise. Our Global Cannabis Practice is now in over 20+ jurisdictions across DLA Piper actively advising across the globe, which is a reflection of the hard work and focus we have given the sector as a firm.

It has been a big year for cannabis in Europe to say the least, what have been some of the big news stories in your view over the last 12 months?

Rahool: The Court of Justice of the European Union’s (CJEU) judgement in the Kanavape case is a very significant development for the CBD market, by clarifying that CBD by itself, cannot be considered to be a narcotic, no matter what part of the plant it comes from.

Dylan: From my point of view, with the green shoots in North America sprouting after a significant market correction, we are seeing that permeate into and across Europe.

I would say that the listings on the London Stock Exchange, from a corporate lawyer’s point of view was a massive advancement for the industry. For some time, it was somewhat unclear how, and importantly, what type of companies were going to be able to access the nexus for European capital markets. We were very pleased to see the statement from the Financial Conduct Authority in September 2020, which has provided clear ground rules. We’re also quite positive that there are now pathways to build long-term businesses, through greater access to venture capital via newly established funds, while also giving shareholders a path to liquidity through the recently opened public markets; founders no longer have to immediately sell their businesses prematurely to achieve an exit.

What about Brexit? What impact has this had on cannabis related businesses?

Dylan: As it pertains to the industry, we are yet to see how Brexit will shake out. There are real opportunities for the UK to be a hotbed for in- novation, and the UK Government’s last bud- get seems to have trended positively towards R&D and high-growth companies. On the other hand, patient access is still incredibly difficult, as I understand things. Therefore, we might end up in a scenario where a lot of great innovation takes place in the UK, but patients here struggle to benefit from it. The UK has good prospects to also be a ‘best in class’ in the hemp/CBD industry, but again, it will take significant government support to advance this part of the industry as well. We also see Brexit’s more obvious negative consequences where patients were being supplied from the Netherlands and are now disrupted because of the changing import requirements.

Rahool: From a regulatory perspective, there were some differences emerging even before the end of the transitional period on 31 December 2020. For example, the UK Food Standards Agency (FSA) responsible for administering the Novel Foods framework, had already determined that it considered CBD products to be a novel food. When the European Com- mission suspended novel food applications for

CBD during the summer of 2020 (as Kanavape was still pending before the CJEU), the UK FSA had already firmly taken the view that CBD was not a narcotic and that it would support novel food applications despite the European Commission taking a more cautionary view until Kanavape was decided. This suggests that the UK authorities can move more quickly and decisively where needed. But I agree that we are yet to see how Brexit will affect the industry. English courts are still considering judgements coming out of the CJEU after the transitional period, even though the higher courts are no longer bound by it.

What European countries have you been most impressed with? Why? Which country has room for the most improvement?

Dylan: It’s so hard to say what is going well and where, but from our point of view we were pleased to see the Dutch supply pilot programme in respect of certain cities. Historically, supply of the coffeeshops was illegal, yet consumption on premises tolerated – therefore, we had this weird lacuna in the law, which is now being addressed. Not all cities have signed up, but again, it’s about steps that are being taken which should make the situation clearer for everybody.

France, probably the more conservative country with regard to this industry, is also moving forward with its pilot programme which is encouraging. However, there are no guarantees that the companies working with the government would be able or allowed to participate post-pilot. France is a potentially huge market, but their cautious and conservative approach to cannabis presents challenges to the development of the industry.

We’ll clearly continue to see growth in Germany as positive developments continue their momentum. It was worthy of note that STADA (one of the larger German pharma companies) declared that it would market medical cannabis in Germany in the future. This is to our knowledge the first German traditional and big pharma player to do so. Germany continues to be a core focus of European cannabis, especially for those overseas players looking to expand into Europe. I would also say that Denmark continues to punch above its weight. The government and related authorities are really making it attractive to set up a business there in this space with lots of events, meetups and venture capital available to pursue a business there.

I think the concern remains with getting medicines approved for use under their pilot programme, but the innovation will no doubt be germinated there. We also are keeping an eye on Malta as a gateway to Europe and now Morocco, as we understand they are looking to soon legalise for non-recreational use. As a country with such a deep history in cannabis, I’m curious to see how this develops.

cannabis social club growth

Are you seeing a lot of corporate activity in the space yet?

Dylan: I would say the start to 2020 continued like 2019, as capital flows hadn’t quite yet returned to the markets, but from autumn/ winter 2020 things have definitely picked up and we’re seeing signs of growth. We are now seeing consolidation, companies looking for overseas targets and, companies coming to the public markets. For example, we were delighted to see EMMAC and their tie up with Curaleaf at the beginning of March, as it validated the pan-European business model and the team there has been working hard for many years. MGC Pharma coming to market on the London Stock Exchange was also a seminal moment for the European industry, so again, delighted to see this progress.

Can you help our readers (especially those who are non-Europeans) understand the Novel Food regime as it relates to CBD?

Rahool: A novel food is defined as food that had not been consumed to a significant degree by humans in the EU before 15 May 1997, when the first Regulation on novel foods came into force. In order for a novel food to be authorised, it must satisfy the following three requirements:

• be safe for consumers;
• be properly labelled, so as not to mislead

consumers; and

• if a novel food is intended to replace an- other food, it must not differ in a way that the consumption of the novel food would be nutritionally disadvantageous for the consumer.

In the UK, the Food Standards Agency (FSA) came to the view that CBD is a Novel Food in 2019. As a result novel food authorisations are now required in respect of CBD products.

What are the key issues keeping your clients up at night and/or the most common issues you are seeing them face?
Dylan: One of the main issues we continue to deal with is the application of the Proceeds of Crime Act (POCA) in the UK to cannabis businesses. The Financial Conduct Authority (FCA) guidance around this point gave a lot of clarity as to how such businesses would be considered and that, amongst other things, any business with adult-use in its portfolio would be precluded from going public – we basically knew that, but it was great to see it stated officially.

The POCA also created uncertainty in investors taking stakes in cannabis businesses and a lot of differences of opinion remain in the legal market, as to the application of POCA on this area. Nonetheless, everyone in the industry appreciates that regulatory uncertainty is part of doing business in a novel sector such as this, but we’re hopeful that more clarity comes in due course through the promised FCA guidance consultation or similar. Our clients also remain concerned about patient access to the medicines that they’re developing. It really varies across the continent and can often feel like two steps forward and one back.

Rahool: The patchwork of different regulations and the seemingly inconsistent application of some of those regulations, for example with respect to tolerance thresholds for THC, the interpretation of the Novel Food regulation or the UN Single Convention on Narcotic Drugs, 1961 by different countries is a significant burden for any CBD or cannabis business.

denmark cannabis sales

What further regulatory changes do you anticipate in the next few years?

There are still a number of areas that need to be addressed. For example, the use of CBD or other cannabinoids in pets is not yet authorised in the UK – this is due to a lack of safety data, so there is likely to be some change in this area as a number of pet-owners are keen to use cannabinoids to treat diseases in animals as more safety data becomes available. The fact that the UK doesn’t consider CBD to be a narcotic, but still require extracts (when grown under a hemp licence) to come from the non-flowering parts of the plant does not reconcile with the approach taken by the CJEU.

At an international level, there obviously remains a lot more to be done under the Single Convention, so that businesses and the medical community can operate more efficiently. There is significant scope for re- search and development in this area, but the requirements for special research licences is slowing down scientific progress.

What transactions are you as a team most proud of this year?

Dylan: We’ve been really lucky to work with some amazing clients this year. Of particular note for our global practice was Chris Giordiano in the US and Russel Drew in Canada advising Aphria in connection with its proposed CAD$5 billion (USD$3.8 billion) combination with Tilray Inc. The deal with Aphria and Tilray will create the largest com- pany in the global cannabis industry based on reported revenue for the most recent 12 month periods of each company prior to the announcement of the deal. It really allowed our team to show its depth of expertise and ability as a firm, providing sector expertise across a number of jurisdictions globally, including the US, Canada, Portugal and Germany (among other jurisdictions).

I would also say, we were very pleased to work for Organigram as their European counsel for their transaction with BAT plc. That was an incredibly interesting transaction and we were delighted to be a part of such a fantastic transaction that validates the market.

Besides the ‘mega’ deals, we take great pride in assisting all clients in the sector look at new jurisdictions so that they can expand their footprint globally. Global regulations are complex and we’re actively promoting solutions that help companies get their medicines or products to those who are in need of them.

The European Cannabis Report: 6th Edition takes a deep dive on the current social, economic, regulatory and health trends. The report also includes sales forecasts of medical and adult-use cannabis in the US and Canada.

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Expert Interview: Dylan Kennett and Rahool Sarjua of DLA Piper

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