Marijuana Business Magazine July 2019

Marijuana Business Magazine | July 2019 54 PLANNING IS A MUST Planning and preparation are key. “A good target is that it takes about four months to complete a capital raise, and about half that time is planning,” Amann said. One critical step is getting your financial records in order so they can be: • Audited by an independent firm. • Used in calculating financial projections, valuations and other figures that will form your pitch and that investors will want to know. “Before any liquidity event like this—a debt raise, an equity raise—companies should really start thinking about getting the books and records audit-ready,” said Anson Augustine, an audit specialist with the cannabis practice at Marcum, a national accounting firm headquartered in New York. Unless your company has in-house counsel with capital-raising experience, you will likely need to hire a business advisory firm to draft subscription documents and investor questionnaires to help you assess whether interested investors are accredited or not—that is, whether they meet certain income and net-worth qualifications. That’s important because issuers tapping nonaccredited investors must provide them with disclosures that include things such as balance sheets and descriptions of the securities and risks. Issuers don’t need to send such disclosures to accredited investors, which makes the capital-raising process easier for the company. “We only focused on accredited investors,” said Cresco Labs’ Amann. In case you’re putting together a private placement, you’ll also need counsel to draft a private placement memorandum, a document that discusses the management team, business plan, applicable securities laws and other details. LOCATING INVESTORS Finding investment firms willing to invest in cannabis is getting easier. But for startups and young companies seek- ing venture and private equity funding, friends and family, wealthy individual investors and family offices serving deep-pocketed investors remain the most common sources of capital. Establishing relationships with those people can take several meetings over many weeks even before you make your pitch. “There’s nothing more powerful in terms of building investor confidence than meeting with somebody, not asking for money and (then) saying, ‘Here’s what we expect to happen over the next three or four months, and I’ll see you in three or four months when things come to fruition.’ That’s what I’ve learned in the private equity space. You don’t ask for money,” said Joe Puglise, chief operating officer at the Denver cannabis consultancy Medicine Man Technologies and previously a partner with the Beekman Group, a private equity firm in New York. “Things that come to fruition” can include hitting sales or other financial projections, closing an acquisition or hiring key talent. “There’s plenty of capital out there. People are excited about the growth opportunities, so take advantage of that now, while you can.” —Ken Amann, Cresco Labs' chief financial officer Hustle America