An Industry on High Alert: Why It’s a Great Time to be an Accredited Investor

Under federal securities laws, a company that is selling its securities must first register them with the SEC. However, there are some exceptions to this requirement. Under Rule 506, one way that companies can avoid these registration requirements is by selling to a number of “accredited investors.”
Accredited investors have the legal access to invest in certain products (such as hedge funds and venture capital funds) that the general public is not entitled to. There are currently many opportunities that make being an accredited investor worth your while. One such opportunity: cannabis.
According to the National Institutes of Health (NIH), in 2018, more than 11.8 million young adults reported marijuana use within the past year, making it the most commonly used psychotropic drug in the United States next to alcohol.
Since cannabis is still illegal on the federal level, marijuana companies cannot register their stock with the SEC. But by requiring their investors to be accredited, they can get away without requiring registration.
This is a really exciting time to be an accredited investor in this sector; once the big fund managers, who are currently reluctant to invest in the marijuana industry, enter and begin investing, the early investors will greatly benefit from industry growth.
But before you dive all into the world of marijuana, two steps are required before you can be considered an accredited investor.
1. You must qualify as an accredited investor under the law.
Common qualifications of accredited investors include the following:
  • A natural person with an individual or joint (with spouse) net worth in excess of $1,000,000 (excluding the value of the primary residence);
  • A natural person with an individual income in excess of $200,000 in each of the two most recent years or joint income (with a spouse) in excess of $300,000 in each of those years (and has a reasonable expectation of the same level of income in the current year). The same method must be used for all years unless marriage or divorce occurs during that time; and
  • An entity in which all equity owners are accredited investors.
2. The company in question must verify that you are accredited.
It is not enough for a company to assume that an investor is accredited. The company must perform its own due-diligence. This can be difficult to prove, as there is no certificate or award regarding investor accreditation; it is something that is simply determined by the company through evaluation. Companies will often look at:
  • Financial statements
  • Credit reports with net worth
  • Tax returns
  • W-2 forms/others showing earnings

Under Rule 506(c)(2)(ii) there are examples of investor verification methods that serve as safe harbors to prove that a company took the reasonable steps necessary to verify the investor as accredited.

It is important to verify the accreditation of an investor because the SEC wants to ensure that these individuals understand the risks that are involved with these types of securities.

Calculating Destiny, LLC Can Help
At Calculating Destiny, LLC, we are dedicated to helping you improve your business or start a new one, and make money. This includes paying close attention to sector trends and helping individuals to establish what is necessary to qualify for access to the best deals in your industry. As the legalization of cannabis continues to expand and over half of the U.S. population believes that marijuana should be decriminalized, the cannabis industry may just be calling your name.

However, there are many questions and much uncertainty that surrounds the marijuana industry and its regulations created by the U.S. Federal Government. That’s why Calculating Destiny is proud to be offering a 6-week, comprehensive workshop, #in420mation, in order to cover what it is that you need to know when dealing in the cannabis industry. Whether you are interested in investing, starting a business, or partnering with a business, we’ve got the answers to your questions. To learn more about the course or to sign-up today, go to https://www.eventbrite.com/e/in420mation-session-the-real-costs-tickets-89063504339 .

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