Bermuda’s authorities have given the go-ahead for investment vehicles interested in taking advantage of the legal cannabis sector. Elizabeth Denman of Conyers Dill & Pearman explains why this offshore jurisdiction is the clear choice for setting up ventures investing in cannabis-related enterprises.
Investment in cannabis businesses, either directly or through an investment fund, was until recently a questionable business-line for Bermuda organized entities. That changed on 14 December, 2018 when the Bermuda Monetary Authority (BMA) confirmed that it will permit Bermuda incorporated/organized investment entities whose investment strategy is linked to the cannabis industry to register with it provided such business activity is legal on all government levels where it is being conducted.
In Canada, the 33 U.S. states and other jurisdictions where marijuana has been legalized for either medical or both medical and recreational use, investment in commercial production and uses of cannabis has soared. Start-ups abound in ventures ranging from development of branded strains and medicinal varieties, to spin-off data and technology businesses. Cannabis and its related products have started to hit the mainstream.
Investors smell opportunity. The number of investment funds and exchange-traded funds focusing on the sector has been growing steadily. For institutional investors and asset allocators looking for new ways to diversify, legal cannabis presents a promising alternative. Parties looking to capital-raise for investment in cannabis-related industries are now looking to establish investment structures that streamline the process and provide protection to both investors and investment managers.
Bermuda has been a “go to” jurisdiction for incorporating investment funds for decades and continues to leverage its global position as an international centre for innovative and flexible solutions for raising and deploying capital.
Bermuda’s investment funds regime falls into two broad categories: open-ended funds (where investors may redeem their investment as and when they desire on a predetermined schedule) which are subject to registration and/or authorization by the BMA; and closed-ended “private equity” style funds (where only the fund itself can decide if and when to redeem investors) which require no regulatory approval and are treated more like traditional holding structures. Investment funds can take a variety of forms in Bermuda including companies, limited partnerships, unit trusts and limited liability companies (LLCs).
Speed to market and regulatory certainty is paramount when raising capital for a new venture and Bermuda has recognized and responded to this business reality. In the case of closed-ended funds, structures can normally be organized within twenty-four hours and launched very quickly thereafter. There are no prescribed service providers (other than a secretary and registered office) and no regulatory approvals or fees payable in order to be able to start taking in subscription monies immediately following organization.
Open-ended funds usually fall under BMA oversight and authorization. Reflecting Bermuda’s entrepreneurial heritage, the BMA takes a responsive and flexible approach which aims to regulate innovative products in an effective and sensible manner. Similarly, the Investment Funds Act, 2006 (IFA) which governs the sector has been designed to meet the diverse needs of today’s investment professionals.