Today’s cannabis market is smoking hot. Startup launches abound. Consumer interest is robust. Regulatory guidance is rapidly evolving.
These trends show no sign of abating. Marijuana is fully legal in 11 U.S. states and the District of Columbia. It is medically legal and/or decriminalized in 24 others.
According to Grand View Research the global legal marijuana market is projected to reach USD 146.4 billion by the end of 2025. This has spawned a flurry of new startups worldwide.
According to Fit Small Business, the cost to launch a regulated cannabis dispensary is approximately $775,000. Annual operating costs for a regulated dispensary average are around $1.92 million annually.
As is the case with any developing industry, the cannabis space is ripe with ambitious entrepreneurs who are often still new to the business world. At the same time, there are experienced business leaders who can set the pace for the others.
With the continued evolution of the industry, heavy regulation is beginning to take hold. With oversight and conformance with state laws and regulations vital for success, startups need a single source of truth where organizational decisions and actions can be effectively facilitated through document creation, management, and cap table management tools.
An Evolving Landscape
The cannabis industry is facing a corporate governance problem. And it’s one that startups can ill afford to turn a blind eye to, given the frequently changing regulatory landscape.
Today’s cannabis businesses must maintain strict compliance with state regulations along with federal law. Often shareholder registries are managed through the use of rogue spreadsheets. Because of the human element, they are often susceptible to errors.
The issuance of new shares or options prompt updates to these registries. Many early-stage companies use convertible notes which transfer into equity based on targeted milestones. The problem with this is that these transactions don’t always occur correctly. So anytime there are discrepancies in these records, they can be very time consuming and costly to reconcile.
Given the importance of these authentic record of ownership, these errors can be problematic. If the information is incorrect or out of date, contacting shareholders to vote on major acquisitions or a sale can prove difficult.
This is where the promise of a new normal comes into the picture.
In short, Equa endeavors to allow companies to focus on their core business while taking care of the nitty-gritty backroom stuff that they cannot achieve in terms of bandwidth, knowledge, and experience.
There are a number of ways that Equa hopes to become a differentiator for cannabis companies:
Compliance: Because Equa is an all-in-one documents platform it can help address regulatory concerns, It can also serve as a valuable tool for KYC (Know-Your-Customer) procedures.
Information Transparency: The blockchain allows for the storage of relevant corporate information (i.e., shareholder name, address, shares, etc.) all on a digital, immutable ledger. This will provide an easy way for shareholders of cannabis enterprises to register their holdings directly with the company, rather than through a broker. Moreover, a distributed ledger approach can offer greater public access to share ownership percentages, boosting the likelihood of more informed investment decisions.
Voting Transparency and Shareholder Engagement: Equa can provide a mechanism that allows shareholders easier access to their voting rights, proxy transfers (if required), and more accurate vote tallying.
Organization and Efficiency: Equa can mitigate the need for paper share certificates while providing an accurate documentation record of shares issuance and ownership. It can help streamline organizational processes as well as reducing asset transfer settlement times. And in some cases, counter-parties could potentially be eliminated altogether.
Conversions: Through the use of smart contracts, preferred shares could automatically be converted to common shares with each financing round. Each transaction will be recorded in the digital ledger, eliminating the need for human updates or multiple copies of shared registries.
To learn more about Equa and sign up for a free trial, please visit us at www.equa.global
Funding is the lifeblood of a business. For without a sustainable financial foundation, one’s likelihood of entrepreneurial success is greatly diminished.
Seed funding is just one of a number of financial pipelines to tap into. In brief, it’s a form of securities offering where an investor pours capital in a startup in return for an equity stake in the company.
The goal? To provide new and emerging entrepreneurial ventures with capital for things like management team salaries, R&D, proof-of-concept, prototype development, and beta testing, among others.
Series A, Series B, and Series C represents the compendium of business funding rounds. Taken in alphabetical order, here is a brief overview of each.
Series A is the first round of institutional financing for a business and is often directed by one or more venture investors. Valuation in this round reflects advancements achieved with seed capital, management team consultation and other evaluative benchmarks. Typically, Series A investors will purchase a 50% ownership stake a the company.
Success at this funding stage allows a company to proceed forward along a number of different fronts, including development, talent acquisition, business development initiatives and other activities valuable to their business expansion.
Series B is the second round of funding for businesses. It typically takes place when the company has reached certain milestones and is beyond the initial startup stage. Funding at this financing round can occur in various ways including private equity, venture capital, crowdfunding and credit investments. Financing acquired may be directed toward a number of different aims including operational enhancement, product development, revenue systems, as well as value creation for the next funding stage.
Series B is the stage where publicly traded companies are often seeking to boost their number of shares available on the open market. It’s here where equity investors typically prefer convertible preferred stock to common stock due to the dividend accrual and anti-dilution features, that may be unavailable with common stock.
Series C is a later-stage financing mechanism that businesses often employ to strengthen their balance sheet, acquire operating capital, finance an acquisition, launch new products/services, or prepare the company for an IPO or acquisition exit. The company often has a solid track record at this juncture of its business trajectory providing outside investors with multiple levels of reassurance to justify a higher valuation.