There are several reasons why even large CBD brands are increasingly turning towards crowd-funding as a method for raising funds. The most obvious is that it remains difficult for them to agree terms with more traditional funders. Banks and even government finance has remained difficult to access despite the legality of hemp and hemp-derived products being confirmed.
Many venture-capital funds classify hemp-derived products incorrectly as “vice” products akin to tobacco, alcohol or legal cannabis. This means that internal rules often prohibit investing in them.
This leaves very few alternative methods. But what CBD companies do have is a ready built “crowd” in that consumers of CBD products are quite often advocates for those products and brands and more wrapped up in the success of the companies and industry as a whole than the typical consumer would be for products in, say, the laundry detergent sector.
This means that a savvy CBD company should be able to tap into that passion and advocacy and offer attractive investment that gives consumers a stake in the company producing the product and brand they support. For example, Voyager CBD offered a range of “perks” such as discounts and free products at various levels of investment in addition to the equity shares purchasing a crowd-funding stake in a company would bring.
There of course remain disadvantages as well with any method of financing. Experienced directors point out that VCs and angel investors often bring in outside expertise that is lacking when it is a crowd-funded investment. Then again those same VCs and angel investors may have strongly differing ideas on how to run things and not having them throw their financial weight around in the decision-making process can also be viewed as a good thing.
There is also no guarantee that crowd-funding will give the best raise to equity rate a company in another sector with the exact same financials could achieve from the alternative methods of finance that would be open to it and not the CBD company. But as current rounds continue to be oversubscribed, it appears appetite for buying into CBD has not yet been sated – indicating that companies are likely to get as good a deal as they possibly could when trying to raise cash through platforms such as Seedrs, Thin Cats, Crowdcube or Lending Circle.
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