The American financial industry has long standing traditions and regulations that are facing disruption at the hands of the burgeoning fields of cannabis legalization and equity crowdfunding. Separately, these markets are projected to be massive, but together, they’re monolithic.
Why the cannabis industry is a major tipping point
Turn on the news, it’s no secret that cannabis is the emerging industry of our lifetime, similar in scope to the end of prohibition. In fact, George Washington, the first president of the United States said, “Make the most you can of the hempseed and sow it everywhere,” because of its medicinal and practical usability. The Latin name for hemp is cannabis sativa, meaning hemp and marijuana are from the same flower family but only one has the intoxicating effect of tetrahydro-carbinol (THC).
Growing at an astronomical rate of up to eighteen feet in four months with naturally strong fibers, hemp has the potential to replace trees, reduce carbon emissions and contribute additional uses for humans. The secondary uses of hemp can generate and sustain their own ancillary markets which include paper, clothing & other textiles, fuel, building materials and much more.
Due to ensuing political and corporate maneuvering, hemp and cannabis became a banned substance that developed an unwarranted image. This unfounded bias has persisted, to the detriment of chronic pain sufferers. As the positive medicinal effects of cannabis are becoming increasingly widespread, public perception has significantly improved. Canada has even legalized recreational marijuana. In 2016, Canada and the U.S spent over $53 billion dollars on cannabis, the market is poised to increase exponentially as the industry moves into the legal sphere.
Life before equity crowdfunding
In 1933, the U.S. government established the Securities Act to restrict who could participate in investing, effectively dividing Americans into two categories: accredited and non-accredited investors. Since then, these restrictions have prevented everyday people from having the opportunity to invest in the next big industry, like cannabis. These rules also halted startups from raising capital from selling shares to a large pool of everyday investors: a lose-lose scenario for both parties.
Equity crowdfunding is a movement
For most average people, the possibility of securing equity in cannabis startups was impossible until the JOBS Act was passed in 2012, coming into effect in 2016. Equity crowdfunding allows a broad spectrum of non-accredited investors to buy into the action for as little as $10. More than a simple investing platform, equity crowdfunding is a chance for average people to attain financial literacy.
The cannabis industry is a natural fit for equity crowdfunding because the long held stigmas have made raising startup capital difficult for some, and virtually impossible for others. It’s not uncommon for entrepreneurs to spend more human hours trying to get in contact with open-minded accredited investors willing to invest in cannabis than refining their product and messaging. Seasoned cannabis entrepreneur Jane West said it best when she stated, “the whole process took longer than I thought and was more draining to the company’s resources than I had imagined.” Equity crowdfunding is the solution to marijuana’s marketing and financial woes.
How cannabis will disrupt entrepreneurship
Equity crowdfunding has created a new class of eligible investors who are hungry to participate in new opportunities. The startup ecosystem is ripe with entrepreneurs and revolutionary ideas in need of funding. Entrepreneurs in ‘sin’ industries have traditionally been denied access to capital funding since US federal laws currently prohibit buying and selling cannabis. Thanks to portals like Fundanna, the first regulation crowdfunding portal exclusively dedicated to the cannabis businesses in the U.S., affordable equity crowdfunding is offered to all classes of investors. Additionally, entrepreneurs gain access to flexible, previously unattainable capital generation – both parties win.
The emerging cannabis market coupled with equity crowdfunding is poised to usher in a redistribution of financial opportunities in America. These changes have the potential to generate a positive ripple effect on the overall economy for average people. More people have access to more opportunities – college, homeownership, self-employment, life without poverty, a simple savings account and so much more. For example, during the 2017 California wildfires, growers were able to raise money through equity crowdfunding to assist uninsured growers. Prior to the JOBS Act, this act of charity would have been impossible given the traditional financial structure. Being an entrepreneur is a difficult task, having a supportive community that mobilizes in a time of crisis is profound. Community support has been a key component in many successful cannabis crowdfunding projects.
Due to the useful nature of cannabis, it presents nearly limitless verticals for creative entrepreneurs willing to explore the potential of a new industry. Forced to stay away from traditional routes to funding, cannabis startups were subjected to intense scrutiny in their often fruitless pursuit of accredited investors. With cannabis still classified a Schedule I drug, equity crowdfunding is the only route for many entrepreneurs seeking capital. Equity crowdfunding supports entrepreneurs by significantly reducing time spent raising funds, allowing them to maintain focus on growing their business. Investors are able to circumvent traditional channels and participate in a highly regulated market, still ripe with negative perceptions that hold back the entire industry. Investors enjoy a lucrative position of being able to invest in cannabis startups as well as the ancillary verticals that will spring up.