July 20, 2016

Raising capital for your business is tough in any industry. But raising it in the cannabis industry has its own headaches. But all is not lost – cutting edge solutions for getting your cannabis capital may be just the remedy you need.

Gone are the days of raiding the wall safe behind your Grateful Dead poster in the basement to raise money for your business. Innovation has taken over and it’s almost never simple. Cue the negotiation of a gauntlet of legal challenges and golden opportunities that must be snatched at a moment’s notice.

The cannabis industry is no exception. Raising capital for your cannabis enterprise is virtually the same, though it has its own set of unique legal challenges, especially as a non-profit.

But with diligence, networking, and opportunism, the challenges are far from insurmountable.

Requirements of Soliciting Capital

One of the largest ways to raise money – offering company securities, aka stock shares or membership units, for public sale. Security offerings require companies to register the offering with the SEC (Securities & Exchange Commission), not always practical when just starting a business.

The question then becomes, “Can money be raised without SEC large-scale investment transactions?” The easy answer is technically you can, but the juice may not be worth the squeeze. The difference? Accredited versus unaccredited investors. People who meet the SEC definition of “accredited investors.” Generally, this is a person whose net worth is more than $1M at the time of purchase, whose income exceeds $200K in each of the past two years, or who is a director, general partner, or executive-level officer in the company selling the securities. “Unaccredited investors” are everyone who doesn’t meet those requirements. Recently, the SEC adopted rules to permit companies to offer and sell securities through crowdfunding, in which non-accredited investors are afforded chances to invest capital.

“Safe” Places to Find Your Cash

The cannabis industry is almost exclusively a non-profit landscape California; that is, if the business is in compliance with the Attorney General Guidelines. Trying to raise significant capital as a non-profit entity can be problematic for investor and the non-profit alike.

In comes the new trend – acquiring money from an asset management company. What a concept! This is an easier way for an investor to “safely” invest in the cannabis industry. When we say “safe” it does not mean, of course, that there’s no risk of loss involved. Instead, it means fewer legal issues to worry about when investing in an industry that’s illegal by federal standards.

Investors that make up these management companies are often called “angel investors,” people who want more in return than ROI, such as ownership equity. These so-called “angel investors” organize into groups to pool resources and share research and leads, which fosters more investing power, credibility, and protection against loss.

In the past two or three years, several cannabis-focused management companies have sprung up, the most notable being the pioneer of the movement, The Arcview Group. Traditionally, they have invested in ancillary cannabis enterprises, such as pharmaceutical companies doing research on the efficacy of CBD for treating epilepsy, but they have recently begun taking on dispensaries.

Other well-known and respectable management companies to consider soliciting include Privateer Holdings, CanopyBoulder, Marijuana Investment Company (MJIC), Greenfield Capital Partners, among others. So what are you waiting for, lets start investing in this growing industry! (pun intended)

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.