Some medical cannabis companies in the process of getting licensed in Malta have solved their banking issues by turning to overseas banks, while Malta Enterprise CEO Kurt Farrugia reveals that three local banks are “positively considering” whether to allow the industry into their risk appetites.
Earlier in November, BOV CEO Mario Mallia announced that, in line with regulators’ demands and a lack of expertise within the bank, it would not be accepting to service medical cannabis companies as the industry falls outside its risk appetite.
Medical cannabis was officially legalised in Malta in March 2018, with Malta Enterprise in charge of overseeing the licensing process. Asked whether the banking situation has been a concern for Malta Enterprise, Mr Farrugia was cautiously optimistic, as companies “are finding other solutions”.
He added that “some companies are using banks in Spain and Germany; big banks which are established.” In comments to The Malta Business Observer, Mr Farrugia explained that Malta Enterprise undertook an exercise whereby it communicated with all banks in Malta, as well as a number of international financial institutions, about the medical cannabis industry locally and the licensing process involved.
He said that an overview was given to the banks detailing due diligence and business plan scrutiny by Malta Enterprise on each applicant company. To apply, firms need to submit details regarding company structure and the Ultimate Beneficial Ownership (UBO) of shareholding. Following this, aspiring companies must seek out an EU Good Manufacturing Practice (GMP) certification.
Furthermore, aspiring companies must be GMP certified in the country where the company was originally set up. In addition, the raw materials imported for production in that country – in this case, Malta – must also be EU GMP and Good Agricultural Practice (GAP) certified.
Malta Enterprise CEO Kurt Farrugia
Mr Farrugia highlighted that Malta Enterprise’s goal in meeting with the banks was to share knowledge about the industry and fight any misconceptions that may exist.
“We met each and every bank and provided an overview of the whole spectrum of companies that we have approved by issuing a Letter of Intent, and made a specific case for the medical cannabis industry in general.
“We aimed to share knowledge on the industry, the way it is developing and that, at the end of it all, these aren’t companies operating in the entertainment industry. These are not recreational drugs, but products used for medical purposes, produced by pharmaceutical companies that employ scientists, quality experts and medical doctors,” he underlined.
In an attempt to provide perspective, Mr Farrugia drew attention to Malta’s well-established pharmaceutical industry. “We produce active ingredients for cancer medication which are deadly – one drop could kill you. The active ingredients for such medication are far more dangerous than a room-full of THC. The point in all this is that the danger with THC is not so significant when you consider what is being produced on the island,” he said.
Mr Farrugia stressed that the companies looking to set up in Malta are essentially pharmaceutical ones, going on to assert that, although “banks view pharmaceutical companies producing such cancer medication in a professional way, unfortunately, there is still the misconception that cannabis could be a problem, even for medicinal purposes.”
Asked about staffing issues with the regulator overseeing the licensing process, Mr Farrugia said that so far, he has not received complaints in this regard. Licensing is a long process and, therefore, there has not been a large number of vacancies being made in one instance.
Currently, there are 24 medical cannabis companies that hold a Letter of Intent by Malta Enterprise – out of 50 applicants – with six at a very advanced stage. Mr Farrugia said that the Government expects exports to start by the first quarter of 2020.
He explained that out of companies which have received a Letter of Intent, some are relatively young but are made up of experts within the industry. “We have been rejecting new companies to the industry, unless they have a very solid and experienced management team,” he stressed.
Asked what the most significant advantage and disadvantage is for a company seeking to operate in the medical cannabis space in Malta, Mr Farrugia – true to his nature – chose to begin with the positive.
“The fact that you have a one-stop-shop, as a company inquiring to set up in Malta –where you have Malta Enterprise and the Medicines Authority working together throughout the process –is very positive. Also, the fact that the licence encompasses all business activity related to medical cannabis is also a big plus.”
Onto the negative, Mr Farrugia explained that the banking situation and scarce land resources remain the biggest challenge. He noted that the bank issues are a “positive challenge” with solutions in sight. With regard to the availability of space, companies currently have two options: they can have space allocated to them by the Government or rent out a space for the private sector.
Mr Farrugia said that after a company receives its Letter of Intent from Malta Enterprise, following the due diligence process, it must then identify a site and set up its laboratory and clean room. After this, it can be GMP certified by the Medicines Authority. Therefore, finding the right space is crucial.