Encinitas-based BudTrader is going public — offering well-heeled investors a chance to buy stock in the marijuana trading platform at $1.25 a share in a “pre-IPO” offering.
But the minimum buy is $420, or 336 shares. (That first figure is an apparent reference to April 20 or 4:20 p.m. in cannabis culture.)
Thursday morning, CEO Brad McLaughlin of the “Craigslist of weed” sent email announcing: “Only a select number of investors will be accepted, and it will be on a strict first-come, first-served basis.”
How to get in?
Once you’ve signed up via Equifund CFP, you’re asked your net worth and annual income. Investors are expected to show an annual income of $200,000 individually or $300,000 jointly with spouse or have a net worth of more than $1 million individually or jointly with spouse (not counting primary residence).
Despite federal laws that have driven other marijuana companies to list on foreign markets, such as the Canadian Securities Exchange, BudTrader is considered a technology company servicing the cannabis industry, said Jordan Gillissie, CEO of Equifund CFP.
“As a result they would not be prohibited from listing on any exchange as a result of the business they are engaged in,” Gillissie told Times of San Diego.
McLaughlin, 35, didn’t respond to questions on his plans, but his promotional letter links to Equifund of Ottawa, Ontario.
Wearing a white “BudTrader T-shirt, McLaughlin says in a 3-minute video that he’s giving the cannabis community a chance to invest in BudTrader “before the Wall Street banks, hedge funds and [venture capital] firms.”
(An Equifund press release Thursday quotes CEO Gillissie as saying: “We are proud to launch a Regulation [crowdfunding] offering for BudTrader who opted to raise capital from the crowd through the Equifund platform instead of utilizing traditional financing avenues so that everyone will have the chance to invest. In the past, these opportunities were only available to the well-connected or the ‘qualified investor.’”)
McLaughlin says he hopes to expand beyond the United States (29 states), Puerto Rico and Canada to Mexico, Australia and the European Union in the next 18 months.
By targeting individuals (18 is youngest age), McLaughlin is taking a nontraditional tack in his pre-initial public offering of common stock.
According to investopedia, “private investors in a pre-IPO placement are typically large private equity or hedge funds that are willing to buy a large stake in the company. The size of the investment means the price paid for shares in a pre-IPO placement is usually less than the prospective IPO price.”
BudTrader, incorporated in June 2016 and calling itself the “World’s Largest Cannabis Social Community,” claims $2 million in revenue in the past two years, “which were profitable.” (However, it doesn’t list earnings, or profits, and it lists operating losses in disclosures.)
McLaughlin hopes the pre-IPO raises $1 million, which would be “spent … to scale our operations so we continue to grow our audience both nationally and internationally,” he said on a message board.
But disclosures suggest he’s looking to hire more and better people.
“We face intense competition for personnel,” BudTrader says. “The failure to attract and retain personnel or to develop such expertise could delay or halt the development and commercialization of our product candidates.”
Deadline for the pre-IPO is Sept. 30, 2019, but McLaughlin says: “Investors openings will be closed immediately upon achieving goal. Prompt action is highly recommended.”
In an opening note, McLaughlin highlights how the cannabis industry is “poised for growth” as more states legalize marijuana, which can “propel this market to a projected $26.3 billion by 2025.”
He says BudTrader’s “diversified involvement in all things cannabis mitigates” risk in the fierce competition for market share.
But under a 4,000-word “Risks & Disclosures” section, BudTrader says: “We have incurred operating losses in every quarter since we founded our business in 2016, and we may not be able to generate sufficient revenue in the future to generate operating income.”
Equifund’s Gillissie calls that operating loss assertion an error, however.
“I have brought this to the attention of BudTrader’s securities counsel and management,” he said. “It seems as though the text used in that section was not correct. My understanding is they are filing an amendment with the SEC to rectify the language and speak to their profitability.”
But BudTrader concedes many of its rivals “have greater financial, technical, product development, marketing and other resources than we do.”
They include MassRoots, Leafly, Weedmaps, Bong Appetit, Weediquette, Marijuana Man “and other companies we may be unaware of.”
”We cannot provide assurance that we will be able to compete successfully against these organizations, which may lead to lower customer satisfaction, decreased demand for our solutions, loss of market share and reduction of operating profits.”
BudTrader says it plans to keep future earnings, “if any, for the foreseeable future, to repay indebtedness and to support our business and planned growth strategies.”
As a result: “We do not intend in the foreseeable future to pay any dividends to holders of our shares.”
Besides founder and CEO McLaughlin, a creatively promotional computer scientist and software engineer, BudTrader lists key management of CFO Stone Douglass, media manager Eva Silva and investment banking adviser Douglas Leighton, also an investor.
(Silva is described as “an award-winning published author, writer and producer. Previously, she was the publisher of Sensi Magazine, a pro-cannabis city lifestyle publication. She is also an advisory board member for the Chula Vista Cannabis Village.“)
Major investors in BudTrader include former Rep. Dana Rohrabacher, NFL Pro Bowlers Marvin Washington and Willie Gault, retired Air Force Gen. Scott Gray, four-time NBA champion John Salley, and music producer Chris Jones.
Before BudTrader could be listed on the Canadian Securities Exchange, it would need at least 150 shareholders holding at least one lot [100 shares] and at least $200,000 in working capital, said Radhika Ramkarran, senior listings coordinator.
“And once they submit their listing documents, it takes about six to eight weeks” to be approved for sale on the exchange, she said.
Amid all this, McLaughlin was upbeat in his initial note to potential investors.
“It’s not every day something like this comes along. The opportunity to invest in a cannabis company before it goes public is extremely rare,” he wrote. “Be sure to act today.”
Updated at 9:20 p.m. May 30, 2019