Exempt Offerings  JOBS Act Solutions

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Regulation S Restrictions Calibrated to the Level of Risk

Posted on March 12, 2019 at 10:30 PM Comments comments (0)

Under Rule 903 additional restrictions are calibrated to the level of risk that the Regulation S securities will flow back into the United States.

Rule 903 sets forth three categories of transactions.

Transactions by Category Category 1 transactions include offerings of securities by foreign issuers or, in the case of non-convertible debt securities, a U.S. issuer, in an “overseas directed offering.” There is no Category 1 distribution compliance period during which time the securities may not be resold.

Category 2 transactions include offerings of equity securities of a reporting foreign issuer; debt securities of a reporting U.S. or foreign issuer; and debt securities of a non-reporting foreign issuer. The Category 2 safe harbor is available even if there is a substantial U.S. market interest in the securities. Exempt category 2 debt securities include non-participating preferred stock and asset-backed securities.

Category 3 applies to all transactions not eligible for the Category 1 or Category 2 safe harbors. Category 3 transactions include debt or equity offerings by non-reporting U.S. issuers; equity offerings by U.S. reporting issuers; and equity offerings by non-reporting foreign issuers for which there is a substantial U.S. market interest. 

General partnership with a specific purpose

Posted on March 12, 2019 at 9:55 PM Comments comments (0)

General partnership with a specific purpose for real estate private placements

Use a template for a general partnership with a specific purpose that allows borrowers to find interim or medium term financing without reliance on exemptions from Federal and state registration requirements. This strategy requires a lender who is willing to assume joint liability for your acts and omissions in the execution of the general partnership’s business, but only for those acts and omissions.

Learn more about how to use unregistered non-exempt private placements for real estate projects at www.privateplacementadvisors.com.

Seed Rounds and Crowdfunding

Posted on March 6, 2019 at 3:30 PM Comments comments (0)

Startups and fast-growing businesses are increasingly turning to Crowdfunding exemptions to raise capital in Seed Rounds and Pre-Seed Rounds. They are relying on JOBS Act exemptions from SEC registration, primarily Regulation D, to make equity and debt offerings to accredited investors and non-accredited investors. And they are quickly learning how to use other exemptions created by the JOBS Act, especially Regulation S and Registration A.

➢ Q: What is a Pre-seed Round?

A: This is when the issuer and other founders if any are getting the company’s operations off the ground. This is time for a Friends-and-Family Round. No debt. Almost all the investors in early stage companies demand and receive part ownership. It is too early for promissory notes, except for some well-secured real estate deals, unless the investor insists on preferred convertible notes. Valuation is the rub. Valuation is seldom transparent. It is subjective, based on management, track record, market size, competition, risk and any number of things.

➢ Q: What is a Seed Round? A: Sometimes called the Early-Stage Round, this is when issuers hire a founding team to do market research, ancillary product development and market testing. This is also when the issuer decides what the final product or service is going to be and what the ideal demographic is going to be.

➢ Q: Who are Seed Round investors?

A: Seed Round capital sources include angel investors, private equity investors, and alternative class investors. Some issuers return to friends, family and associates at this stage.

➢ Q: What are the Crowdfunding exemptions?

A: Regulation D, using either or both Rule 506(c and Rule 506(b], is the most popular exemption. 

Regulation S, for offerings to non-U.S. citizens, is becoming more popular as issuers discover some advantages over Regulation D, such as little regulatory oversight (especially in Malta and other favored offshore jurisdictions), no maximum raise, and no PPM (private placement memorandum) required.

Regulation A has two versions, one with a $20 million max, and the other a $50 million max. Regulation A is the exemption most similar to full registration with the SEC; therefore, compared to the other exemptions, particularly Regulation S, it is prohibitively expensive and time-intensive.

Practice Tip: Well-advised issuers are increasingly using separate Regulation D and Regulation S websites, one for domestic marketing and one for foreign marketing, offering the same assets.

➢ Q: What is the difference between 506(c and 506(b?

A: Rule 506(c allows an issuer to market to the public; Rule 506(b does not. Rule 506(b allows up to 35 non-accredited investors; Rule 506(c does not. The usual drill is to use 506(b to raise money from friends, family and associates. After all capital requirements have not been met, the issuer converts the 506(b offering into a 506(c offering.

History Factoid: To market securities to strangers, as now allowed under Rule 506(c, was illegal for over 8 decades. Today, issuers using Rule 506(c can do practically anything to go after both accredited or non-accredited investors; for instance last year a REIT used 506(c to raise capital from early-stage investors on Craigslist.

➢ Q: So why do any issuers use 506(b?

A: Issuers continue to use Rule 506(b because it allows up to 35 non-accredited investors. If you need family money and some members of the family are not accredited, you must use 506(b.

Practice Tip: An issuer can go from 506(b to 506(c but not from 506(c to 506(b.

➢ Q: What are Series A, B and C Rounds?

A: These rounds are for issuers with track records who have established a user base, have consistent revenue figures or enjoy other proofs of process. Most Series A Rounds raise between $15 million to $50 million. Series B and Series C Rounds usually raise more capital than that, sometimes much more. These rounds are when series 7 and other securities licensees take interest and when VCs and PE (private equity) funds do much of their investing.

Sometimes a single large investor will serve as the “anchor” (think COSTCO as the first tenant in a shopping center), drawing in other, more risk-adverse investors, in exchange for re-negotiated terms.

Most issuers never need Series A funding, let alone Series B or C funding. Their Pre-Seed and Seed Rounds have raised enough capital to enable them to avoid giving more equity.


Private Placement Advisors LLC designs and executes Pre-Seed and Seed Rounds using Crowdfunding (JOBS Act) exemptions. This is all we do. Schedule a free 20-minute consultation. We will listen to the company’s narrative, we will ask questions, and we will suggest one or more JOBS Act solutions. For specific suggestions on how Private Placement Advisors LLC may be able to help your company raise Seed and Pre-Seed capital, email [email protected]

Explaining Seed Round Funding

Posted on February 15, 2019 at 3:30 PM Comments comments (0)

First, we are talking equity. No notes or other debt is welcome unless convertible and even then probably not. Early stage investors demand partial ownership. It is too early for debt. Valuation is the rub.


Valuation is often not transparent to say the least. Valuation is subjective, based on management, track record, market size, competition and risk.


Stages of Seed or Early-Stage Funds


Pre-Seed Round


This is when the founders are getting the company’s operations off the ground. It is the first part of your Friends-and-Family Round.


SEC Rule 506(b allows up to 35 non-accredited investors. If you want family money and not all family members are accredited, go with 506(b and convert to 506(c when you need more capital.


Seed Round (also known as the Early-Stage Capital Round)


This round enables you to pay a founding team to perform market research and ongoing product development (and sometimes related product development). Your team determines what the final product or service should be and who its target demographic is.


Seed Round sources include angel investors, private equity investors, and other private placement investors. Some startups return to the friends-and-family well, the second part of the Friends-and-Family Round.


SEC Rule 506(c allows you to market your deal to the public (something not permitted for 80 years prior to enactment of the JOBS Act). The usual drill in Equity CrowdFunding is to use 506(b to raise from friends, family and associates and then use 506(c to raise from more money from the public, most commonly with online advertising.


Practice Note: You can go from 506(b to 506(c but not from 506(c to 506(b.


Valuations for Seed Rounds typically range between $3 million and $6 million while Seed Funding rounds themselves range from $10,000 to $20 million.


Equity CrowdFunding -- which means Regulation D, Regulation S and Regulation A under the JOBS Act -- is becoming the go-to tool for the Seed Round (as well as for the Pre-Seed Round). For $1 million offerings, “Reg Cf” is available.


Even after securing a Seed Round, in today’s tech-weighted economy, companies may attract insufficient investor interest from traditional Series A investors such as VCs and private equity funds. These companies now frequently turn to Equity Crowdfunding in the form of a Regulation A offering with a $50 million maximum raise or a Regulation D offering or Regulation S offering with no maximums.


If you have overseas investor interest, Regulation S allows you to take advantage of less regulatory oversight than with Regulation D offerings


Series A Round / Series B Round / Series C Round


These rounds are for companies that have developed a track record, established user base, consistent revenue figures or other key performance indicators. These rounds are used to further optimize the user base and to scale the product or service across different markets. The business model must promise long-term profits and a convincing, detailed description of how you go from here to there. You need more than a good idea. You a persuasive strategy for turning that idea into a successful, money-generating, ongoing business.


Series A, B and C rounds are where FINRA-licensed broker-dealers get involved. And this is when VCs and private equity players invest. A single investor may serve as the “anchor,” drawing in other, less adventuresome investors. Typically Series A rounds typically raise $2 million to $20 million. Series B and Series C Rounds raise from $50 million to much more than that.


Time for an IPO?


Of course, some startups find that they do not need Series A funding, let alone Series B or Series C funding. These companies already have sufficient outside funding together with operational cash flow.


Private Placement Advisors LLC designs and executes Seed Funding Rounds under the JOBS Act. That is all we do. Please contact [email protected]



How to raise cannabis capital using JOBS Act exemptions

Posted on January 26, 2019 at 11:15 PM Comments comments (0)

There are several ways to raise capital for your cannabis business using exemptions using JOBS Act exemptions Reg CF, Regulation A+, Regulation D, or Regulation S.

1. Regulation Crowdfunding (Reg CF)

Think Kickstarter with equity (or debt) being offered.

Reg CF or Regulation Crowdfunding is relatively new and makes it legal for private placements to be marketed to non-accredited investors. Securities purchased under the Reg CF exemption cannot be resold within a year. Only $1,070,000 can be raised each year.  You will need to file an annual report with financial statements. If you neglect to do so, you will be unable to fund-raise with Reg CF again until you file the missing annual report. You may concurrently raise funds from accredited investors using a Regulation D exemption.

2. Rule 506(b or Rule 506(c under Regulation D

Rule 506 is the easiest and most-used exemption. There is no limit to the amount you can raise under either 506 (b or 506 (c. Under the Rule 506(c exemption, general solicitation and advertising are permitted. Only accredited investors may invest. Under Rule 506(b, 35 investors may be non-accredited, but no general solicitation is permitted. This exemption is often used with the friends-and-family-round of capital raise or first capital stack.

3. Regulation S is a relatively new but popular option. You can sell securities offshore without regard to the sophistication or number of purchasers in the offering or the size of the offering. You can raise as much as you want from an unlimited number of people. The regulatory environment is far less burdensome than with Regulation D offerings. Regulation S selling efforts from the U.S. are permitted if the efforts are directed abroad. You can sell securities offshore without regard to the sophistication or number of purchasers in the offering or the size of the offering.

You can raise as much as you want from an unlimited number of people. Unlike Rules 506(b and 506(c of Regulation D, Regulation S does not have specific information requirements.

An issuer who makes a Regulation S offering online may do so without jeopardizing its exemption by including prominent statements on its website saying that the offer is directed only outside the U.S. A Private Placement Memorandum is not required for a Regulation S offering, but steps must be taken so that foreign investors understand the structure, principals, and risks associated with the offering. A Regulation S offering may be conducted concurrently with a Regulation D offering to U.S. accredited investors without the offerings being deemed integrated. S

Securities sold under Regulation S are subject to re-sale restrictions. The nature of the restrictions depends on whether the issuer is foreign or domestic; whether the issuer is a public company; the types of securities being sold; and whether there is a “substantial U.S. market interest.” The securities being sold must contain a legend stating that the securities may not be resold to US investors for a restricted period of time.

4. Regulation A+

Regulation A+ is designed for companies who want to raise more funds publicly, but don’t want to do a full-blown IPO. You can raise up to $50 million per year. Importantly, you can advertise your cannabis fundraising while you “test the waters” and solicit investors before filing with the SEC.

It can be expensive. Before you can start fundraising with a Reg A+ you need to pre-file an offering placement memorandum (OPM) with the SEC. An OPM is like a business plan wrapped with a whole bunch of legal disclaimers, and can cost serious legal fees. We (Private Placement Advisors LLC) advise issuers to schedule 30 days to compile the required documents; 21 days to complete and submit the forms; and then up to 45 days to get SEC approval. 5. Cannabis Funding Platforms Platforms friendly to cannabis are said to be around the corner. This will be easier than going it alone but you may end up paying the platform 7%-8% of what you raise.

Questions? Contact [email protected]

Private Placements for Broker-Dealers

Posted on January 25, 2019 at 1:20 AM Comments comments (0)

Some startups try to engage a registered broker-dealer to help them raise capital in a private placement offering.

Who is a registered broker-dealer?

A registered broker-dealer is a financial intermediary registered with the SEC and Financial Industry Regulatory Authority (FINRA). “Broker” means that the firm can sell securities for clients and “dealer” means the firm can sell securities for itself. Money is earned with fee-based services and from commissions on capital raised.

How can a broker-dealer help?

Not all broker-dealers work on private equity offerings. But a broker-dealer who likes your private placement may have investors and investment networks with lists of pre-qualified Accredited Investors. They also may have ties to investment banks, venture capital firms or private equity firms. Also, some broker-dealers assist you in crafting a PPM, term sheet, pitch deck, and other documents. They may even be willing to make presentations on your behalf.

Finally, investors’ perceptions may be altered in favorable way. They may assume there is less risk if the financial intermediary has done its own due diligence before agreeing to work with the issuer.

Why doesn’t everyone use broker-dealers?

First, they do not want to work on most private placements. Second, they have to be paid.

More questions? Email d[email protected]

Cannabis Securities Compliance

Posted on January 17, 2019 at 6:50 PM Comments comments (0)

Cannabis Securities Compliance

The touchstone of what constitutes a security is whether or not it is a “passive investment.”

If the investment requires active management engagement by the investor, it is not a security.

If it is a passive investment where the investor relies on others, it is a security.

Investors often have the right to give input into management decisions but do not exercise this right. The trend in securities regulation is to look beyond the terms of the agreement to the realities. Cannabis businesses can choose to have all investors be active member-managers and draft their operating agreement accordingly. The following are guidelines to ensure that such investors are “active member-managers” rather than “passive investors.”

1. Investors have voting rights under the terms of the LLC operating agreement and exercise those rights.

2. Investors have a management role or are otherwise “actively engaged.”

3. Investors are members on committees tasked with business operations.

4. Investors had input into and negotiated terms of the LLC agreement.

5. Investors actually receive and even approve reports regularly.

6. Investors have input on key company strategic decisions – major decisions are made after consultation with investors.

If investors have an active and participatory role in management you can ignore securities issues. Accordingly, you may want to see if new investors have experience in the cannabis industry. As the number of cannabis investors grows and becomes more geographically diverse, it is more likely investors will be considered “passive.” At that point you will need rely on one or more securities exemptions and make the appropriate filings.

Cannabis businesses may utilize “management control” under recently released regulations. Regulations define as an “owner” any person who participates in the “direction, control, or management” of a business. Such individuals, having management rights, need to be vetted by state regulators in the license application process.

Both securities compliance and cannabis regulatory compliance are now very much in play. If investors lack management rights and are passive investors, securities compliance is required. 

Common missteps when structuring a private offering

Posted on January 16, 2019 at 1:40 AM Comments comments (0)

Using phrases like “the first” or “the only” can be problematic. Issuers should avoid any statements that can be construed as guarantees. When outlining the investment opportunity, cut to the chase. Less is more. Back up claims with references to reputable sources. Impress with thorough research and summaries of recent information from reputable sources. Use concise language. Avoid revisions that cause delay.

Offerings of operating companies rise and fall on their valuations. A valuation that is too low can lead to future dilution of owner’s equity while lowering the maximum that can be raised. A valuation that is too high can make it difficult to raise any capital at all. Try to have a well-reasoned rationale for the valuation.

Even a well crafted and sharply focused business plan will receive little interest with questionable investor returns or obviously excessive management fees. If management does not participate in profits until after investors' capital is returned, investors will be more willing to assume more risk. Inexplicable differences from industry average returns and fee structures are difficult to explain to investors. Some investors will not even try to figure out what the potential net return is, so make it easy for them. Multiple line items for consulting and advisory fees are red flags.

Use of proceeds that recaps the founders’ investment capital, if the capital was originally characterized as a loan, is understandably problematic. Real estate offerings using more than 70% leverage to acquire property will be perceived as risky, although high leverage can be appropriate in stabilized, low vacancy properties with creditworthy master tenants and a stable lease profile. Equity stack positions are appropriate for offerings of buy-and-hold-and-pray undeveloped land deals.

Commissions offered in Regulation D exempt offerings vary substantially by industry, but placement fees and broker compensation should not be so high as to be contrary to an investors’ interest. Try to use a flexible commission structure using language such as “up to X%” rather than a stated percentage. This will allow you to refer the deal to other brokers with a conventional syndicated commission structure if you need to go that way.

If the minimum offering amount is not received before the offering termination date, you face the time-consuming and irksome chore of notifying subscribers that the offering needs to be extended. And this notification can trigger a right of rescission giving an investor the right to reverse his or her decision to subscribe! Be sure to include a right to extend the offering period at the issuer's discretion. Allowing ample time for the offering avoids the need for “bridge” financing and permits the possibility of alternative financing sources.

A first impression is important when asking people for money. In this case, the first impression will likely be based on your offering documents including private placement memorandum (PPM), pitch deck, executive summary, and other documents. This is especially true for online offerings using a Regulation D, Rule 506(c exemption. Common pitfalls include hyperbolic pro-formas or financial models. Remember to be reasonable about forecasts and be sure to employ sensible operating metrics. Remember to identify the larger market relative to the revenue opportunity.

Contact [email protected] with any questions.










Cannabis Capital Raise / Marijuana Private Equity

Posted on January 14, 2019 at 6:40 PM Comments comments (0)

Cannabis Capital Raise LLC / Marijuana Private Equity




We work with marijuana entrepreneurs to raise early stage capital.

We publish a confidential monthly newsletter with customized template language for cannabis offerings in a variety of venues and jurisdictions. 

We show private issuers how to quickly and cheaply raise capital from U.S. residents under SEC Regulation D and simultaneously raise capital from non-U.S. investors under SEC Regulation S, using the same assets.




Do you own or manage a cannabis commerce company that has raised some capital organically and is now ready to raise more? Email [email protected]




Are you interested in cannabis investing opportunities? Email in confidence [email protected]




Cannabis Capital Raise LLC is a Hawaii-based financial consulting firm with adjunct offices in Palo Alto. Call 415-320-5496 to speak directly to Doug Slain or email him to schedule a conversation. 

California Cannabis Proposed Regulations

Posted on November 22, 2018 at 12:30 AM Comments comments (0)


The California Bureau of Cannabis (the Bureau) has said that it will finalize proposed regulations in December 2018. Details about how to comment on the proposed regulations are available here: https://cannabis.ca.gov/public-comment.

Cannabis Commerce Reporter selected, parsed, paraphrased or copied everything below. All mistakes are ours. 

Applicants and licensees must use their legal business names on all documents related to cannabis business activity. No more DBAs.

License applicants must buy a different bond for each license they receive.

Permitted: 3% variance for moisture loss in dried flower instead of a 2.5% variance. “The Bureau has conducted additional research and determined that 3% is right for retail sales.”

In addition to not being transferable, licenses are not assignable.

“ … cannabis businesses are seeking alternative methods to acquire capital … due to lack of traditional business loans ... ”

An cannabis business owner includes “ … an individual who will be participating in the direction, control, or management of the business, including anyone who assumes responsibility for the license, or someone who is managing or directing the cannabis business in exchange for some of the profits; or someone who is responsible for debts of the business; or someone responsible for non-plant-touching portions of the cannabis business such as branding or marketing; or any individual who is “determining what cannabis goods the business will cultivate, manufacture, distribute, purchase, or sell.”

If an entity has a financial interest in a cannabis business, all individuals who own any of that entity are considered to have a financial interest in the busines.

A licensed premise cannot be in a location that requires persons to pass through the licensed premises order to access a business that sells alcohol or tobacco or provides access to a private residence.

Licensees may not use advertising likely to be appealing to anyone under 21 and only be displayed where at least 70 percent of the audience is reasonably expected to be 21 years of age or older.

15 miles is a “necessary and appropriate distance” from the California border for a licensee to operate.

Licensees must submit a written request to the Bureau for approval to sell specific items of branded merchandise together with photographs of the branded merchandise.

The requirement to record point-of-sale areas does not apply to all microbusinesses. It only applies to microbusinesses that have been authorized by the Bureau to engage in cannabis retail.

In order to transport cannabis goods to another licensee with the certificate of analysis, the certificate of analysis must be less than 12 months old.

A 3% variance for moisture loss in dried flower is now permitted, instead of a 2.5% variance. Variances for cannabinoid and terpenoid content from the labeled amount and the actual amount allows for a plus or minus 10%.

In order to transport cannabis goods to another licensee the certificate of analysis must be less than 12 months old.

Cannabis goods must be labeled with content for cannabinoids, terpenoids,Total THC, and/or Total CBD.

Cannabis goods that have not been transported to retail within 12 months of the date on the certificate of analysis must be destroyed or retested.

Details about how to comment on the proposed cannabis regulations are available here: https://cannabis.ca.gov/public-comment/