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Canadian issuers of cannabis private equity seeking access to U.S. capital must satisfy Regulation S under the JOBS Act.

Regulation S provides a safe harbor for securities in offshore transactions with no directed selling efforts in the U.S. The term “directed selling efforts” means anything could have the effect of “conditioning” the U.S. market for the offering. Any press releases or other publicity surrounding the cannabis offering must not be disseminated in the U.S. There must be a prominent legend on the securities saying that the offering is not available to U.S. citizens. Typically, U.S. investors are sought in the same time period.

This “cross-border offering” is actually two separate offerings marketed in parallel on both sides of the border. The SEC exemptions that cannabis offerings usually rely on for the U.S. portion of their cross-border offerings are Rule 506(b and Rule 506(c under Regulation D. With Rule 506(c private cannabis shares can be offered to anyone anywhere in almost any manner. A virtual Wild West for early stage capital, in early 2018 a REIT used Rule 506(c to raise capital on Craigslist. Issuers can indiscriminately solicit investors online and elsewhere for any legal service or deliverable.

Rule 506(b, sometimes referred to as the “Friends and Family Exemption,” permits the issuer to sell shares to 35 non-accredited investors as well as to any number of accredited investors. The downside is that Rule 506(b cannot be used if the issuer wants to solicit the public. As for re-sales, Rule 144A provides an exemption for QIBs (Qualified Institutional Buyers), which include U.S. insurance companies, investment companies, certain employee benefit plans, trusts, broker-dealers, and large banks.

A cannabis private placement (as well as any private equity transaction) can be followed by a resale to a QIB. For example, a fully underwritten cannabis offering could be sold to a syndicate of initial purchasers who in turn can sell shares to one or more QIBs.

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Regulation S Restrictions Calibrated to the Level of Risk

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.

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General partnership with a specific purpose

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

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Use Reg D with Reg S