Capitalizing on Cannabis Crowdfunding with Federal Vetting

The SEC thoroughly vets companies looking to fundraise under 'Regulation Crowdfunding.'

In the current era of crowdfunding, at least 18 cannabis companies in search of capital have launched campaigns on Republic, a relatively new source of lower-level direct investing for businesses that are willing to undergo rigorous vetting by federal officials.

And in the current tough-to-navigate landscape of corporate fundraising, the platform may be worth a look for marijuana executives. The core appeal is access to lower-level investors who aren’t ready or able to pony up five or six figures.

But this isn’t just another GoFundMe. Companies looking for capital who want to list on the platform are scrutinized by the U.S. Securities and Exchange Commission under its “Regulation Crowdfunding” guidelines.

“Cannabis businesses have the ability to get investment capital from everyday people, instead of these big (venture capital firms),” said Shannon Bitzer, chief operating officer of CanEx Delivery, a Southern California company that bills itself as the first marijuana delivery operator to get listed on the platform. The company launched its first campaign in February.

“Some guy that just has a regular job making $40,000 a year can put $150 into CanEx and become a part owner in a private cannabis company, instead of one of the penny stocks,” Bitzer said, referring to CanEx’s minimum investment level.

Bitzer pointed to a former fundraising campaign cannabis entrepreneur Jane West, who used Republic to raise more than $700,000 from 3,430 investors in 2018 for her lifestyle brand. Bitzer noted that more marijuana businesses are likely to take advantage of the platform as the avenues for fundraising continue to tighten.

“It’s just really tough to raise money right now, even on a platform like this, like Republic,” Bitzer said.

The catch is there’s a high bar to entry: Months of document disclosures, paperwork and auditing, and companies looking for funding have to be open books. Bitzer estimated CanEx took about five months of disclosure work with the SEC and Republic before they were able to launch their fundraising campaign.

That’s a stark contrast to crowdfunding campaigns that many cannabis companies have launched, which often aren’t as transparent for investors as Republic, Bitzer said.

“To even be able to do this, there’s a lengthy process of checking, auditing financials, filling out documents with the SEC,” Bitzer said. “These are vetted businesses. They have revenue already. And it lets the potential investor know what the yearly revenue currently is, what the valuation is.”

Part of the deal is also that Republic will take up to 3-5% equity in a company that successfully raises at least $25,000, Bitzer said. He added there’s a yearly maximum of three campaigns per company, and a limit of roughly $1.25 million that can be raised per round.

John Schroyer

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