The growing cannabis industry is making lots of money, but not everyone can get a slice of the pot pie. Federal regulations have prevented many average Americans from investing in the cannabis industry, whose growth has arguably been stunted by the inability to fund new marijuana enterprises. But a new federal regulation is now making it easier for investors like you to buy into the cannabiz.
Many Americans are less interested in opening up canna-businesses and more intrigued by the idea of helping the industry grow by investing in the sector, giving valuable capital to cultivate cannabis companies and then reaping the rewards of the monetary risk. Since many institutional investors are averse to that risk, there are many high-value investment opportunities in the legal marijuana industry.
The only problem is, the average investor cannot participate for a number of reasons.
The first has to do with attitudes toward cannabis. There are plenty of examples of 'pot stocks' and now there's even a cannabis Exchange Traded Fund (EFT), but any stocks that deal directly with the plant are usually listed on the Canadian exchange or the penny stock market. That's because U.S. stock exchanges are run by the Securities and Exchange Commission (SEC). And, aside from a few exceptions, the SEC has been skeptical of cannabis stocks. In 2014, for instance, they actually suspended trading of five marijuana related stocks. So many entrepreneurs would rather raise money away from the open market and the watchful eye of its federal overseers.
'Main street' investors also find it difficult to place their bets on marijuana companies because the industry is so young. Early stage companies can't take money from just anyone because of federal regulations. Investors in small, non-publicly traded companies must be accredited, according to SEC regulations (clause 505 and 506 of Regulation D, to be exact).
That rule was put in place under the assumption that accredited investors are more sophisticated, but in reality, the regulation is little more than a requirement for investors to pass a wealth threshold. Basically, they must have a net worth of over one million dollars (minus their residence) or make over $250 thousand annually. The rule is meant to protect vulnerable citizens from incurring financial losses, but it also prevents a huge percentage of the population from investing in the cannabis industry which, due to its young age, is made up primarily of early stage companies.
But all that could change under a recent addition to the securities code. In 2012, President Obama signed the JOBS Act into law. The act -- which was created to increase the overall financial opportunities of average Americans -- included a regulation known as Reg A+. A provision allowing eligible early-stage companies to receive investment from all investors, regardless of income or net worth. Reg A+ was in enacted in 2015 and companies are now starting to gain traction with their offerings. (Find out more details about Reg A+ here.)
Meet the New Crop of Cannabis Investors
These new investment offerings are sprouting up in nearly every industry -- from amusement parks to robotic mall cops to Canadian ski resorts. They're all using the new offering to raise capital. And cannabis is no exception -- especially when it comes to real estate, which has been an important part of the cannabis investment landscape. The first cannabis real estate company to successfully crowdfund using Reg A+ is Green Leaf Investment Fund, which allows average citizens to invest in the cannabis industry for as little as $480.
“We see this as a win for the cannabis industry as another legal way for outside investment to come in and for those who believe in the cannabis industry," Green Leaf CEO Douglas DiSante told Civilized. "Every dollar invested into an industry is like a vote of support. Now we can all cast this vote, no matter our net worths.”
DiSante has been in the commercial real estate industry for ten years, and he manages over $3 Billion for mainstream banks like Santander. He became involved in the cannabis industry after his grandfather started using medical marijuana to treat cancer. DiSante wanted to see if he could use his expertise to help the industry.
“I found out that a lot of companies were not able to or did not want to buy the real estate that they desperately needed to operate,” he explained.
So he created Green Leaf Investments to raise money for commercial property intended specifically for cannabis use. Thanks to Reg A+, he's been able to raise $10 million through the popular crowdfunding platform CrowdVest.co. “Investors can now have the upside of a cannabis investment with the risk-protection of a well vetted commercial real estate deal,” he said.
Green Leaf Investment Fund is one of only a few companies operating in the cannabis space with an approved Reg A+ offering. The management team is comprised of several commercial real estate experts with over 30 years of experience working on Wall Street.
Not all companies will be able to use crowdfunding to finance their cannabis operations. But federal government's new rules for start-up fundraising will help bring new capital into the underserved cannabiz landscape. And hopefully the rising tide of increased investment will raise all the ships together. So next time you're thinking about investing, consider putting your money in something that you believe in, understand and enjoy.