Imagine a $30 billion industry in the United States without access to traditional banking services. It sounds like fiction, but it’s a true story. The cannabis sector, despite huge strides in their quest for legitimacy, still lacks the means to tap into funding from FDIC banks.
That didn’t stop Peter Vogel. As CEO of Leafwire, one of the world’s fastest growing cannabis social networks, he’s fully immersed in the problems facing business owners in the market he services. This month, he showed them a potential way around their financial obstacles.
Leafwire is raising money using Regulation CF, aka crowdfunding, through SeedInvest. They are targeting $1.5 million in seed money with a minimum investment of $500 per investor. The round opened in November and they passed the $1 million mark in February.
“I encourage you to invest early,” Vogel said in an interview with Ganjapreneur last month. “Since the beginning of 2019, we’ve grown from 4000 members to 36,000 members representing over 15,000 companies. We have 25,000 monthly active users.”
Can Reg CF Effectively Infuse New Capital into Cannabis?
With the current administration in Washington, the legal obstacles cannabis business owners have been facing should go away soon. Unfortunately, full federal legalization of marijuana is still a few years out. That needs to happen for FDIC banks to start funding the industry.
Regulation CF bypasses the banks and accredited investors in the market. It democratizes the fundraising process and opens the door for self-directed investors who want to be a part of companies like Leafwire. The minimums are reasonable, so risk is minimized.
Reg CF is a great way to raise a million bucks. Regulation A+ is for companies looking to raise $20 million to $50 million. Similar to CF, Reg A+ also democratizes fundraising, though investors in a Reg A+ round tend to be more affluent, since the numbers are higher.
Many of the companies utilizing crowdfunding options are still private and growing, but public companies have been known to take advantage of Reg CF and Reg A+ also. For cannabis, an industry hamstrung by federal regulations, it’s a good option.
Cannabis IPOs to Watch for in 2021
Leafwire is not Facebook, so don’t expect them to make a big splash as an IPO in 2021. They’re a long way from that and may never get there. Personally, I wouldn’t invest in them if they did. I liquidated all my social media stock a few months ago and have no plans to add more.
If you’re looking for an IPO in the cannabis sector, the smart money is on CBD products. It’s expected to be a $10 billion market by 2024 and is beginning to accumulate some solid scientific data on CBD related cures and therapeutics. That’s gold for public companies.
Check out Vertical Wellness. A $58 million funding round with Merida Capital Partners in 2019, coupled with the acquisition of Tech-Holdings (cannabinoid research and development) in 2020, puts them in a good position to finally go public in 2021.
Vertical Wellness isn’t the only potential IPO winner in the cannabis space. Another company to watch in 2021 is BioMedican. They extract cannabinoid cannabigerol (CBG), which can help fight inflammation from Chron’s disease. That market’s projected at $4.7 billion by 2025.
Cannabis Stocks to Watch Right Now
My top pick in this space is GW Pharmaceuticals (GWPH), a cannabinoid research company recently acquired by Jazz Pharmaceuticals (JAZZ), a Big Pharma player. GW is the developer of Epidiolex, an FDA-approved marijuana-based treatment for child-onset epilepsy.
It’s important to note here that cannabis has been proven to be an effective medical and therapeutic solution for a number of rare conditions. Treatments for these, if the condition affects fewer than 200,000 people, are classified as “orphan drugs” by the FDA.
Epidiolex is the first marijuana-based orphan drug to be approved by the FDA. I don’t usually buy pharma stocks, but I have a good feeling about GWPH and JAZZ. I’m also throwing in Merida Merger Corp (MCMJ), the SPAC that backed Vertical Wellness in 2019.
My final recommendation is a REIT. Innovative Industrial Properties, Inc (IIPR) invests in greenhouses and industrial facilities for the medical cannabis industry. As that sector grows, there will be higher demand for physical infrastructure. IIPR is ahead of the curve in that area.
Are you still hesitant about investing in the cannabis sector? Get over it. If you wait for federal legalization of marijuana, you’ll miss the boat. There’s money to be made right now in CBD and potential big hitters in the medical marijuana space if you buy in early.
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