Welcome to my latest “Weekly Weed Report” video presentation. Below is a condensed transcript; the video provides greater details.
In this week’s report, I interview Sean Levine, a registered representative at DealMaker Securities, which helps fledgling companies that want to raise their own capital.
Sean has experience as an investment banker, attorney, securities analyst, entrepreneur, and consultant with a focus on private placements, fundamental and technical equity and commodity analysis, trading system development, and policy intelligence.
Why is raising capital a pressing issue for cannabis companies? Many bankers and venture capitalists have been wary of the marijuana revolution, because pot remains banned on the federal level. Although more states have moved to legalize cannabis in one form or another, current federal law continues to prevent banks from providing financial services to these businesses without fear of federal sanctions.
Federal lawmakers are trying to address the dilemma, with the Secure and Fair Enforcement (SAFE) Banking Act. SAFE would help solve the marijuana industry’s cash woes, by allowing canna-businesses freer access to financial services.
Read This Story: Coping With The Cannabis Cash Crunch
SAFE has passed the House but it’s currently stalled in the Senate. Which brings me to Sean Levine and the SEC’s “Regulation A,” an innovative way for pot companies to raise capital. My questions are in bold.
Regulation A has become an increasingly popular option for small companies that need funding. Reg A, as it’s known, is an SEC exemption from registration for public offerings. How can individual investors profitably tap the Reg A trend?
Reg A is often called a “mini-IPO,” and in some ways that’s a fair description. Companies can raise up to $75 million in securities, as opposed to an initial public offering, whereby they can raise whatever they can achieve. Under Reg A, a company can raise money a lot more economically than they can under an IPO.
An IPO might cost an issuer one or two million dollars, just to get all the way through the process, and it’s very time consuming. A Reg A issuer can get by spending maybe $150,000 to $400,000. It’s certainly not cheap by any means, but compared to an IPO, it’s much more reasonable. Also, it’s a faster process.
In addition, much like an IPO and unlike a private company offering, a Reg A is open to anyone; there’s just a cap on what less wealthy investors can invest to get in on the deal. By going to regular retail investors, the issuers can avoid all of those venture capital headaches and remain the captains of their own ship.
A lot of the success of a Reg A is how well it’s marketed or advertised, very similar to what a company would do if it’s trying to promote its product or service. So, selling stock while you’re selling your product can lead to a virtuous circle.
Reg A locations can be near-infinite, because Reg A issuers are allowed to host and manage their offerings on their own website. This can turn finding an offering that’s a perfect fit for you into a very challenging prospect. There’s just no central repository of these deals, and they are also live for limited periods of time.
Many Reg A issuers market their deals on social media platforms and through other forms of advertising, but that means an investor is solely viewing Issuer deals that have paid for advertising space.
As such, we believe financial media outlets such as yours, John, can provide real, meaningful value-add for investors looking to invest in early-stage companies.
When financial newsletters decide to cover private or early-stage deals, they’re scouring the market on behalf of their subscribers, looking for those sometimes hidden gems. And because these publications are customized, they’re finding deals of interest to their subscribers based on industry, stage, and other important factors.
I closely cover the marijuana industry. Are we seeing a lot of Reg A deals in the cannabis sector, and if so, why?
We do see a fair number of cannabis-related deals tapping into Reg A to conduct their capital raises, ranging from THC-active product companies, to industrial hemp, to CBD to related products and infrastructure. Psychedelics are also becoming popular.
And they are doing this for the same reason other companies with consumer products do it. They want to create awareness of their company and their product, to engage with everyday investors, and to do it in a way that allows them to maintain control over their company and their management team’s vision.
Editor’s Note: You’ve just heard Sean Levine explain new ways for companies to raise money. He touched upon the marijuana industry as a prime example.
Indeed, the mainstreaming of marijuana is making investors rich, in good times or bad. Your portfolio needs exposure to marijuana stocks, but selectivity is key.
That’s why I urge you to read my new book: The Wide World of Weed and Psychedelics. It’s your definitive guide for making money in the thriving cannabis and psychedelics industries. To get your free copy, click here now.
John Persinos is the editorial director of Investing Daily.
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