Crowdfunding may not be the simple solution that cash-starved marijuana start-ups can turn to for funding.
In May, the Securities and Exchange Commission implemented new rules permitting small businesses to raise up to $1 million annually through crowdfunding.
The move was hailed in the cannabis sector as a major breakthrough that would help entrepreneurs raise capital from individuals at a time when many banks are leery of conducting business with marijuana companies.
But it may not be that easy. Just ask NextRX, a cannabis-related software firm that launched a fundraising campaign on May 16 through StartEngine Crowdfunding in Santa Monica, California.
Two days later, StartEngine suspended the campaign, the Los Angeles Times reported. Why? When investors support a company raising funds through a crowdfunding site, their pledges are held in an escrow account at a bank partnering with the site.
However, Western Alliance Bank in Arizona, which partnered with StartEngine, wasn’t comfortable holding money for a marijuana-related business, so the site suspended the software firm’s account, according to the newspaper.
NextRX doesn’t touch the plant. Rather, the Las Vegas company is developing an online system to allow medical cannabis dispensaries to store patient records electronically.