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Even though I had been working in the cannabis industry for years as a general counsel at a multistate operator in Illinois, and even though I experienced firsthand the difficulty of raising capital, I did not expect it to be this hard when I opened my own cannabis company, Dynamic Jack, in New Mexico in 2021.
I knew, of course, that opening a bank account would take a while and that we would not be able to seek funding from most financial institutions. So, I initially did what all entrepreneurs do: I raised money from friends and family via a SAFE. We were successful at first, but it was slow going with capital drying up industry-wide (for reasons requiring a separate article).
We were not ready for a full equity financing round for various reasons, and the debt we had been offered came with 15-18 percent interest payments; required that we first raise 30 percent of the total capital through equity; and required us to both collateralize and personally guarantee the loan. It was a non-starter.
So what is a cannabis entrepreneur to do?
Based on my experience in raising funds, I’ve learned a few lessons along the way that other cannabis entrepreneurs might find informative. Here are my key takeaways.
1. Do Your Research
I stumbled upon investment crowdfunding when I was researching non-traditional forms of fundraising. Per the SEC, only “accredited investors” may invest in a typical equity funding round; however, crowdfunding is meant to broaden the investor pool to those who might otherwise not be considered “accredited” by virtue of their financial standing and/or those who cannot invest in the minimum amount required in a typical funding round (e.g., $50k-$100k).
If this sounds interesting, you’ll want to do your research and understand the fees, structure, length of the campaign, incentives you may or may not be allowed to offer and the other platform rules. The structure in particular is important, as you may have the option of raising money via equity (usually in the form of a SAFE) or debt, and there are pros and cons to each (as well as a difference in fees).
A cannabis crowdfunding equity structure could, for example, inadvertently create an administrative and financial nightmare in the future if not handled correctly. This is why a debt crowdfunding structure may be more attractive to some entrepreneurs.
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2. Create a Coordinated and Personal Social Media Plan
Social media sites like LinkedIn, Facebook and Instagram can be powerful marketing tools; however, the SEC prohibits companies from publicly soliciting investments online or otherwise, with one exception: crowdfunding. Once we began our crowdfunding investment campaign, we were able to talk about it on social media, and that’s what we did.
We hired a two-person team to help us with a social media campaign, and I posted every day like it was my job. I posted pictures of New Mexico’s many landscapes; the farm; me working on the farm; me and the team at conferences in Chicago, Vegas and Albuquerque; and anything funny, quirky or interesting I could come up with relating to Dynamic Jack. We used swag, naming rights for the kittens on the farm, and other creative methods to drive interest, and then I would re-post those “mini-campaigns” on my social media, as would my team. I also responded to every individual message or post by an investor and thanked them publicly.
To be clear, you will have to work hard to have a successful campaign. But, for us, the hard work paid off in investments.
3. Capitalize on Interest Generated From Your Social Media Plan
As a result of our social media plan around the campaign, people in my network with whom I hadn’t personally connected in years (think, elementary school friends) reached out. In one case, an old friend said she was “following my story online” and while she wanted to invest, she wanted equity and not debt. That led to an equity investment from her and then from her brother.
The lesson? Using social media can be a game-changer that inadvertently attracts other opportunities.
Other Key Do’s and Don’ts
• Don’t rely exclusively on others for your social media posts. What resonated most was not the beautiful graphic designs, cool videos and punchy one-liners created by the social media team I hired, but rather my personal (sometimes “raw”) posts: pictures of myself at the farm, covered in dirt, planting, harvesting and working. Ask yourself: How can you inject your personal story and personality into your posts?
• Tell a story. I did not mean to tell the story that unfolded but my “city mouse to country mouse transformation” (and back again) resonated, sort of like a good “rom-com” movie trailer. Think: “Ambitious, high-powered Chicago attorney at the height of her career in the city trades it all in for a ‘simple’ life of cannabis farming in Estancia, New Mexico, with a population of 1,500 people.” OK, so this is a bit of an exaggeration, but you do need to think about what makes your story unique and how you can share that journey with your intended audience in an authentic and engaging way.
• Be mindful of the platform rules. Each social media platform has rules about what can and cannot be posted when it comes to cannabis, and there are horror stories of people having their accounts terminated. This can mean the loss of hundreds of thousands of hard-won followers over the course of many years. Understand what you can and cannot post before you post.
Final Thoughts
Cannabis entrepreneurs have to be scrappy and that means exploring all fundraising options. In our case, crowdfunding ended up being exactly what we needed to get our mojo back. For a fundraising campaign that works for your business, do your homework first and create a social media plan that includes personal, unique and authentic content to support your campaign. You can thank me later.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
