8 June 2016
Cannabis Crowdfunders Should Beware SEC Advertising Guidance
As we wrote last week, new rules from the Securities and Exchange Commission (“SEC”) implementing the 2012 Jumpstart Our Business Startups Act (the “JOBS Act”) have opened up new opportunities for cannabis businesses to raise up to $1,000,000 of capital by selling small pieces of their company to relatively small-dollar retail investors. This is a profound departure from previous SEC rules, which greatly limited a business’s ability to solicit funds from individuals other than “accredited investors” — people with at least $200,000 of annual income or a net worth of more than $1,000,000. Cannabis entrepreneurs, many of whom struggle to obtain traditional small business or start-up financing, generally laud this change as a needed means of freeing up new and more accessible sources of capital. At least one cannabis business is already pursuing this strategy with early success. However, recent SEC guidance on acceptable advertising of these securities could greatly hinder cannabis businesses.
In a series of Compliance and Disclosure Interpretations issued last month, the SEC addressed a number of questions regarding the new crowdfunding rules. Question 204.04 asked whether a media article could constitute notice subject to the rules on advertising equity crowdfunding offerings. These rules permit notices to include only “the amount of securities offered, the nature of the securities, the price of the securities and the closing date of the offering period.” The SEC answered as follows:
If the media article advertises the terms of the offering . . . the article would be a notice subject to Rule 204. Because Rule 204 limits the information that may be in such a notice, it would likely be difficult for the issuer to comply with the rule’s requirements.
Read the rest of the article at http://www.cannalawblog.com/cannabis-crowdfunders-should-beware-sec-advertising-guidance/