When the team at Eastcoasterdam Gardens set out to secure funding to construct a cannabis cultivation facility in Massachusetts, Joseph Lupo, the company’s co-founder and director of cultivation, found many of the deals from potential investors demoralizing.
“They were gross,” he said. “I don’t know any other word to describe them other than gross.”
Then the COVID-19 pandemic hit and cut off the team’s in-person networking opportunities. Lupo said the only channel the company had left was its social media platforms.
“We’ve always had a presence on social media and because of that, Mainvest was really the best route for us to use what we thought was one of our best weapons: social media,” he said. “It’s an online platform, and it’s more in-tune with that type of investor—the common person.”
Mainvest launched in 2018 as a crowdfunding platform to allow small businesses to raise capital from their local communities. It launched its first cannabis offering a few weeks ago with Eastcoasterdam after realizing that the industry is plagued with predatory investors—and after seeing building momentum toward federal legalization.
“Regulatory questions around federal versus state hit a threshold point that we felt comfortable being able to service [the industry],” Mainvest co-founder and CEO Nick Mathews told Cannabis Business Times and Cannabis Dispensary. “As we saw over the last few months, there’s been a massive increase in organic interest from the cannabis space into using Mainvest.”
Mainvest was born from Mathews’ desire to create a compliant, regulated and protected way for everyday investors to invest in local businesses. In 2016, the U.S. Securities and Exchange Commission (SEC) adopted Title III of the Jumpstart Our Business Startups (JOBS) Act, which allows private companies to request investment from a group of people.
“Uber and these early-stage tech companies, they have access to venture capital and private equity,” Mathews said. “Small businesses and private businesses don’t so much. So, we could use those regs to enable businesses to go out and have communities directly invest in their local socioeconomic ecosystem and drive that economic development and growth from within. That was the intention behind the investment.”
The Mainvest team saw a similar issue unfolding in the cannabis industry as it matures, where the market is largely dominated by larger companies that receive large private equity capital infusions.
“The small shops in the community are unable to participate and play ball due to lack of capital access,” Mathews said. “That’s where we saw an immense amount of interest in the space, and when we saw our product served a very unique value proposition for these businesses to enable them to do something they couldn’t otherwise do, we jumped on.”
Mainvest is a Financial Industry Regulatory Authority (FINRA)-regulated crowdfunding intermediary that serves cannabis businesses in states with legal and regulated cannabis markets. The platform’s main goal is investor protection, Mathews said.
“With cannabis, we want to be sure and have to be very sure that the unique additional risks that come specifically from within investing in the cannabis space are very properly and very loudly disclosed to investors,” he said.
Mainvest is designed to raise growth capital as opposed to working capital, Mathews said. New businesses can secure funding through Mainvest for start-up costs, while existing businesses can raise capital for expansion costs.
The platform also helps start-ups gauge community support for their business.
“It allows real, American investors to be able to invest in these private companies and share in their success, and it allows the businesses to go out [and] test the market,” Mathews said.
Mainvest has helped raise capital for over 75 breweries, bars, restaurants, cafes and bakeries across the country to date, and Eastcoasterdam’s offering has been one of the most successful operations on the platform, Mathews said. The Mainvest team is currently in discussions with roughly 50 other potential cannabis partners across legal markets.
“COVID was the best pressure test of our thesis that we could have ever imagined,” Mathews said. “We launched a brick-and-mortar investment platform in 2018, and just a little over a year later, you had this pandemic hit that more directly affected brick-and-mortar local businesses than really any other asset class. … A big part of Mainvest’s thesis is when a business is going out and raising capital and getting it from the community, you’re not just getting capital. You’re getting market validation and a level of social underwriting for market demand for your business in that area. … You don’t just end up with the capital needed to launch or grow your business. You have hundreds of local investors that are actually incentivized for your business to grow and succeed because their returns are tied to the gross revenue of the business. The faster the business generates revenue, the better the returns for the investors. … We had 98 percent of our entire brick-and-mortar asset class continue to grow and thrive and continue to make payments during COVID, and they came out on the other side of it stronger than ever.”
Eastcoasterdam CEO Wendell Orphe said that while the company explored other crowdfunding options to secure capital for its facility buildout, Mainvest quickly emerged as the best choice.
“The process was a little bit of a learning curve for us, just understanding the rules and regulations on crowdfunding, particularly in the cannabis industry,” Orphe said. “We were able to learn very quickly with the help of Mainvest and our own research, being diligent. We were able to launch our campaign in a week, which is very, very fast. … Working with Mainvest, they helped us put together our campaign and have a strategy within their network of active investors.”
Crowdfunding platforms like Mainvest have provided another option for cannabis businesses looking to raise capital in an industry where traditional banking services are off-limits and hard money lenders often come with high interest rates.
“A platform like Mainvest … opens up to all investors—your average joes who are not wealthy Americans, who are not institutionalized and have a million-dollar net worth,” Orphe said. “It allows them to participate in this industry and help cannabis businesses get up and running. … Two years ago, it was hard for us to secure just one investor that we really felt like believed in our vision and our values. To have that now is a huge contributing factor to the brand that we’re trying to be in the community—the people’s brand of cannabis. And these investors have the flexibility to actually invest in the cannabis industry.”
“With Mainvest, you put your project out there, and your supporters come to you,” Lupo added. “It’s just a lot less stressful. There’s a lot less anxiety. Everyone is on the same page once they join the investment. … If you have the local community investing in you, they’re going to be your customers, as well. Everyone succeeds here, everyone wins, and that’s why platforms like Mainvest are really valuable, because the average person gets to succeed with their favorite company.”
Eastcoasterdam has raised 91% of its first-round goal of $250,000, and then the company plans to launch a campaign for round-two funding. Lupo said the experience so far has been “humbling” with an outpouring of local support for Eastcoasterdam’s business.
“The support and feedback have been … extremely positive,” Orphe added. “It’s a lot of people rooting for the small guys and believing in our vision. Raising money in this industry is really challenging, and at times it can really test your principles. … We’ve had offers from investors that wanted to fund the project, but basically, they wanted to have complete ownership and control. We didn’t accept any of those predatory deals because we felt that time is on our side to build this business the way that we want it to be built.”
“Don’t get me wrong, there are definitely angel investors out there, there are good investors out there, but just from our experience in the last couple years, we haven’t found any that are willing to be on our side,” Lupo said. “That’s why we’ve been pushed in this direction, and we’re happy for it. A lot of people will look at us and this project as the flagship to bringing a new style of investment to cannabis, so it’s been really cool to see that from a lot of people.”
At the completion of its capital raise, Eastcoasterdam will construct its cultivation facility in Massachusetts and begin growing cannabis for several stores that have signed letters of intent with the company. Eastcoasterdam should have its first successful harvest within two years, Orphe said, at which point it will begin scaling the business and repaying its investors.
The team’s long-term goal is to become an established brand in the Massachusetts market, Lupo said. “I really want to make this a family-owned business for a long time, a real grassroots company in New England that hopefully someday becomes very popular."