A cannabis company fund is raising capital through the issuance of security tokens rather than a traditional offering of shares.
Global Cannabis Capital, which invests in Latin American cannabis companies, is planning on raising funds by selling equity via tokens on the Ethereum blockchain.
While the company had initially planned some form of public offering in Canada next year, it has instead opted for a security token offering in Luxembourg.
With the offering, GCC intends to issue capital stock in the form of 100,000 tokens, through which the fund will likely sell up to 6% of its equity over the next three years.
While these will likely happen through private placements, the company may later decide to list its tokens on a public exchange, according to CEO Andres Israel.
The chief executive expects the first placement to close by early May, while over 100 investors have already committed to buying tokens in a presale last month, putting the company’s value at $25 million.
Cannabis Company Builder raised $500,000
Until now, the company had been funded exclusively by venture capital, wealthy individuals, and individual shareholders, rather than institutional investors. GCC’s incubator unit, Cannabis Company Builder, managed to raise $500,000 of seed capital last year.
Israel said the company intends to use the proceeds to broaden its portfolio to about 40 companies, focusing particularly on Switzerland, and Canada, in addition to Colorado and California, U.S. states where cannabis is legal.
While the security token issuance may set a new standard for raising capital, it will still adhere to requirements of traditional finance, as investors must comply with anti-money laundering and know-your-client regulations as enforced by GCC’s bank in Luxembourg.
At the same time, such a token offering could set a precedent for other companies in the marijuana industry, particularly in the United States, where the federal government’s prohibition on cannabis prevents them from taking out loans from domestic banks.
The speed with which GCC will be able to raise money was also a major determining factor in choosing this method, according to Israel. “We cannot wait 12 or 14 months to go through an IPO process,” he said. “Tokenization takes around three months.”
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