Cannabis Fundraising: Seven Key Takeaways from the SEC’s New Accredited Investor Rules

Recently the Securities and Exchange Commission (“SEC”) adopted final amendments to expand the definition of an accredited investor, something that has not happened in nearly 40 years. This is a big deal for cannabis companies (and all other companies) that are in fundraising mode because many of these companies rely on Rules 506(b) and 506(c) of Regulation D under the SEC’s rules. Offering securities to accredited investors is generally the safest way to engage in an offering.

According to the SEC, the revised rules will give individuals with the “knowledge and expertise” the ability to participate in “our multifaceted and vast private markets.” In plain language, it will let more book-smart people and insiders invest in private companies. And it will give private marijuana and hemp companies access to seed capital that often comes with fewer strings than traditional bank and institutional investor financing arrangements.

As I described in prior posts (see here and here), the SEC and state securities regulators want to protect investors from themselves and from shady companies. Accredited investors are the type of investors who can “take care of themselves.” They meet certain net worth or income requirements, showing that they either have the financial

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