When it comes to cash and cannabis even the United States Senate has recognized that there’s an issue, Fundanna is hoping to bridge that gap for cannabis investors.
We hear it constantly: cash flow in the cannabis industry is quite possibly the largest hurdle that the industry has faced since conception. With federal regulations restricting canna-businesses from using their financial services, the issue appears insurmountable. The funding conundrum has single handedly destroyed some startups without even a chance of competing in the market. Not to mention that cannabis investors don’t even know where to start. Meanwhile, other business owners have had to resort to some creative tactics in the past to maintain the financial flow.
Don’t worry, however, change is on the horizon with most cannabis businesses seeking the help of investors. As the cannabis industry continues to grow into new states, we are seeing a rise in confidence from financial professionals and investors taking a look at our industry. We had the pleasure of speaking with Vincent Petrescu, founder, and CEO of Fundanna, a company leading the effort in grouping investors together to support the cannabis industry.
“Fundanna’s mission is to help cannabis-related companies raise funds while giving the retail investor the opportunity to invest in cannabis-related startups,” Petrescu explains. By connecting the investor straight to the startup, both the company and the investor can benefit from the relationship directly. “It is better for the startups that want to raise money, because they will have, on their side, a portal that understands the industry.”
Fundamentally, Fundanna is working to build the canna-biz/investor relationship from scratch. “The capital formation in the cannabis industry is negatively affected by the prohibition laws that make cannabis (marijuana) illegal at the federal level. Hence, many potential players in the capital formation are forbidden: banks, institutional funds, etc.” This type of connection has always existed but hasn’t been openly discussed. “…Because of the long prohibition, not enough medical research was done, so the plant and its use still have the stigma…”
A project of this magnitude and complexity requires a great deal of research. It also requires playing by multiple sets of rules that may not always coincide. “At Fundanna, we are working under two regulatory environments: 1.) the Securities Regulation (SEC and FINRA) and 2.) cannabis/marijuana regulation (DEA, banking, state level cannabis regulations). Working in any of the two environments is complicated. One can imagine the complexity to work under both.” The Securities and Exchanges Commission (SEC) protects investors, maintains orderly and efficient markets, and is responsible for facilitating capital formation, while the Financial Industry Regulatory Authority (FINRA) regulates trading, securities futures, corporate bonds, and options.
These stringent guidelines are a puzzle to fit together in and of itself. It only gets more complicated throwing in the fact that each state where cannabis is legal has its own set of guidelines under which they operate. Part of what makes Fundanna so savvy is the fact that they are operating on their own software which zips all of these pieces into place. Petrescu explains that “it was a good move because now we have flexibility in doing anything with it”, meaning that they have the ability to ebb and flow with the changing regulatory tides.
According to an article by Crowdfund Insider, “…the emerging cannabis market [is] expected to hit $11 billion by 2018 and then rise to $22 billion in the next five years.” For those counting, that’s double the dollar amount in five years. Petrescu explains that “…the whole cannabis industry is underfunded, and, on the other hand, there are retail investors that have millions of dollars to be invested in cannabis. For now, their option is to wait until the company goes IPO. By that time, the company is at a much higher valuation, and there are not many companies that can afford the upfront fees to go IPO.
Yes, by bringing new capital and giving the canna-biz startups the chance to try the execution on their idea, we will help the industry to grow faster.” Already, Fundanna estimates that “there are about 40 million retail investors that might be interested in canna-biz”, which is an incredible capital potential for the industry. As for Fundanna itself, “Our forecasts say that Fundanna will intermediate about $77 million for the next three years, and about $180 million for the next five years.” says Petrescu. For Fundanna to reach their goal, each of the cannabis investors would need to contribute about $300 per year.
With these sky-high goals and leading strategies in place, it would seem Fundanna is making the game look easy. But there are still some extensive mountains to climb. There is currently a contribution cap of $1 million per year for non-accredited investors to raise money for the cannabis industry. But Fundanna doesn’t seem to be worried, especially with the growth trajectory and capital potential that investors are lining up at the sidelines with. “There is a regulation pending that will permit companies to raise up to $5 million per year. I am referring to Fix Crowdfunding Act (H.R 4855) that passed the House in July 2016.”
Not only does this endeavor seek to amend the funding issue in the canna-biz, Fundanna is also looking to bring a deeper purpose to the industry as well. ”I think that the consumer and cannabis investors will stay loyal to the company that they invest in. Assuming, of course, the company is at par with its competition,” explains Petrescu. “In addition to being a loyal user/buyer, the consumer/investor will be a great brand ambassador for [the] company… I like to say that after I bought some Coca-Cola shares, I stopped drinking Pepsi.”
What do you think about crowdfunding in the cannabis industry space? As a consumer, does this make you excited about the future of new products and services? What about for potential or current cannabis investors. Does this new endeavor solve a problem for you? Tell us everything in the comments.