Exempt Offerings  JOBS Act Solutions

advising on exempt offerings to find investors.  


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]

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. 

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/