As states legalize cannabis across the country, investors and consumers are becoming more interested in ways to get in on the action. Unfortunately, because cannabis is such a new industry, many retail investors are left with large, publicly traded companies as the only way to have a stake in the industry while the more innovative startups in the space are reserved for wealthy private-equity investors. However, new regulations allow anyone to invest in new cannabis brands- here's how.
Why cannabis investment is difficult
Because cannabis is still federally illegal, US-based companies that are plant-touching typically trade on the Canadian stock exchange. There are a few players available on major stock exchanges, and most are Canadian. It's more popular for retail investors to focus on plant-adjacent options like technology and accessory brands. In general, because private investment has traditionally been limited to accredited and institutional investors, early upside for high-growth startups has been unavailable for the retail investor.
How to invest in cannabis now
In May of 2016, the SEC changed rules that allow private companies to raise up to $5 million from unaccredited investors through Regulation Crowdfunding, or RegCF. While cannabis is still federally illegal, this new regulation allows people of any income level to invest in cannabis companies with straightforward terms. Mainvest is one of the best ways to invest in cannabis, and they utilize a unique investment vehicle to align incentives between investors and entrepreneurs.
Revenue sharing with cannabis
Using the revenue sharing note, cannabis brands can accept investment without diluting ownership or relying on private investors or banks. Aptly named, revenue sharing notes entitle investors to a share of revenue the businesses they've invested in may generate until either the note is paid back, with interest, or it reaches maturity and needs to be paid in full. For example, if an investor invests $100 in a business with a 3x target return, that investor is entitled to be repaid a total of $300 in increments over a set period of time, paid out as a percentage of revenue, or the the balance at maturity*.
Additional benefits of direct investment
While purchasing stocks of cannabis and cannabis-adjacent brands is one way to get involved with the industry, RegCF has additional flexibility and opportunities for investors. By investing directly into businesses, investors are able to build relationships with entrepreneurs and expand their network. With access to private discussion boards, Mainvest investors can network with each other and get insight into the business. They're also able to contact entrepreneurs directly and get a first look at new products.
Cannabis businesses raising on Mainvest can also choose to offer non-monetary perks as well. Investors at different levels may get access to new products or launch parties, in addition to their revenue share.
The best way to invest in cannabis
The cannabis industry is complex, but growing rapidly, and any investor looking to get into the industry should consider all options. Investing in cannabis through platforms like Mainvest allows investors to access new brands early in the business lifecycle, network with other investors, consumers, and entrepreneurs, and diversify their portfolios. To start investing in cannabis, sign up for Mainvest and start browsing opportunities.
Written by Lauren Murdock
Lauren is Mainvest's Content Marketing Manager. She is an expert in marketing strategy and leads content generation for Mainvest.
*All investment contains risk including the risk of total loss. Mainvest does not guarantee that any investment will generate a return.