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Crowdfunding: An Emerging Capital Greenhouse For The Cannabis Industry

ALPHAGREEN is expected to hit close to the £2m crowdfunding mark on the Seedrs platform by mid-May – double what the CBD marketplace had set out to raise.

So far 503 investors have pledged over £1.8m in equity as the high-growth technology and pharmaceutical trading business looks to continue the development of its two core offerings: the Alphagreen.io marketplace and Nuoptima, its B2B data and services arm.

The London-headquartered company covering more than 160 cannabis and alternative healthcare brands, is the latest UK-based CBD firm to smash its initial Seedrs funding target ahead of schedule.

Earlier this year Scottish-based CBD and health and wellness business, Voyager, secured £874,000 from some 350 investors – almost five times more than its initial £175,000 target  – following a highly successful pre-marketing phase for the fund raise.

The two firms are among a growing number of early-stage UK cannabis-related enterprises seizing the opportunity to procure a chunk of money quickly through Seedrs.

Medical Cannabis Companies

Medical and wellness cannabis cultivation players Avida Global and Jersey Hemp, which cultivates and processes industrial hemp in the Channel Islands, and natural wellness brands, Kloris and Cannabrew, are currently all in the pre-registration stage as they prepare to imminently launch their Seedrs campaigns.

Seedrs is gaining traction with start-ups and scale-ups across all sectors – not just those working in the cannabis field – who are prepared to sell a stake in their business online to the ‘crowd’ as they seek forms of finance other than angel funding or venture capital.

Alphagreen – which is backed by high-profile cannabis investors Enexis, West Creek Investments and several well-known angels – is raising at a £10m pre-money valuation through its Seedrs funding round, which is due to end soon.

The company has localised websites in the UK, France, Germany, Poland, Sweden, Italy, Spain and Japan. It was co-founded in 2019 by chief executive Alexej Pikovsky (who spent his early career in investment banking and private equity) and chief technology officer Viktor Khliupko (previously CTO at Sugartrends, the main competitor to Etsy in Germany) and successfully raised £1.1m in 2020.

Loyal Investor Base

This is its first foray into the world of Seedrs, which is open to individual investors aged 18-plus and institutional backers. Mr Pikovsky said the platform holds attractions for businesses that go beyond the financial.

“It gives publicity and a loyal customer base if you have a direct to consumer element in your business model. If you have raised funds from your network, Seedrs allows you to get access to many more retail investors. 

“It’s a great space and the retail market loves it, so I see more companies tapping into this venue of raising capital.”

It’s a view shared by David Kirby, chief executive of Avida Global, which is headquartered in London with cultivation and processing facilities in Cesar in north east Colombia.

It is looking to raise £1m through Seedrs towards capital expenditure to complete its facility in Colombia, business development, and working towards EU-GMP certification – the highest recognition available to companies in the pharmaceutical space.

Mr Kirby said: “Seedrs appeals to us as a platform because it democratises the ability to own shares in a substantial medical cannabis company and attracts a far wider investor base. 

“As Seedrs acts as the share nominee, it also allows us to raise funds without complicating our cap table.”

Unique In Own Right

Mr Pikovsky said that so far every company in the cannabis space raising on Seedrs has been unique in its own right. “Voyager had a £1.2m valuation with an experienced CEO who was looking to get the business CBD public in less than 12 months after the crowdfunding round. 

Voyager’s CBD Gummies.

“That was a great opportunity for Seedrs investors to get into a new brand with a clear exit plan.

“Our story is that we are Europe’s largest market place, a data and services provider and very uniquely positioned as a platform with over 160 brands and more than 2,800 products.

“The next companies raising on Seedrs are Avida Global, which is really unique from a retail market perspective as, apart from MGC Pharmaceuticals on the stock exchange, retail investors have not had a chance to get exposure to cultivators. 

“It’s the same story with Jersey Hemp, and a really unique story as well.”

Minimum Stake Of £10

For backers, equity crowdfunding allows them to make fairly small investments (Seedrs minimum is set at £10) in early stage companies to help get them off the ground, in the hope of scoring a healthy return in the event of an Initial Public Offering (IPO), merger or exit. 

And with worldwide demand for medical cannabis expected to soar from $33.1bn today to $84bn by 2028, the FSA last September giving the green light for CRBs to float on the London Stock Exchange, and consumers increasingly using health and beauty brands containing cannabidiol, CBD companies are being seen as an attractive proposition for investors looking to put their money into an emerging market.

Mr Kirby said: “Globally, there is a growing acceptance and recognition of medicinal cannabis for its enormous therapeutic benefits. To date, 53 countries have legalised the use of medicinal cannabis and we believe recent events such as the new Biden administration in the US and the UN’s vote to reclassify medicinal cannabis, only serve to accelerate globalisation further.”

He added: “As the market matures, we firmly believe that it is those producers and manufacturers that have focused on ensuring the total quality of their products, that will determine the companies that succeed in this marketplace.”

Alphagreen’s erbology hemp seed powder CBD.

Investors come from all walks of life. In the case of Alphagreen, Mr Pikovsky said: “We have several family offices, tech angels and Enexis, the leading cannabis fund in Europe, on our investor list so far. This round we have several high profile investors joining the cap table.”

More Than £1 Billion Raised

Seedrs – which had its most successful year to date in 2020 with investors dedicating £239m, bringing the total advanced via the platform since its inception in 2012 to more than £1bn – is not without its risks, however. 

When a business submits an investment campaign the platform conducts a comprehensive review to ensure that everything is as claimed and isn’t misleading, only allowing it to go live if they’re satisfied. 

Once the campaign has hit its target, Seedrs conducts a detailed legal due diligence process to ensure the company is properly formed and the investment is appropriately structured.

Not all fundraising campaigns succeed. Mr Pikovsky said: “The compliance process is quite substantial with Seedrs, and I guess with Crowdcube and Republic in the USA too.

A Great Cannabis Space

“Another big risk is that if you do not have a large amount of investors secured outside the Seedrs campaign, there is not much momentum and you might not raise the funds you are expecting to raise just by looking at other successful cannabis campaigns.

“If one raises below £200,000-£300,000 on Seedrs, I would think the costs related to the campaign would also be fairly high on a relative basis, and I would not recommend raising that way.”

He believes more cannabis companies will be drawn to the likes of Seedrs, however.

“Absolutely. It’s a great space and the retail market loves it, so I see more companies tapping into this venue of raising capital.”

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