The Huffington Post had an article titled “Marijuana Entrepreneur Plans $100 Million ‘Marlboro of Weed’ Brand With Irreverent Ad” discussing the plans of Brian Laoruangroch, 29, the president of Prohibition Brands. The company is positioning itself to produce ready-made cannabis ‘cigarettes’ and ‘cigars’. What’s unique about this company is it recently filed a Regulation A offering with the SEC.
Now for those that don’t know what a Regulation A offering is, the SEC explains it as:
Regulation A is an exemption for public offerings not exceeding $5 million in any 12-month period. If you choose to rely on this exemption, your company must file an offering statement with the SEC on Form 1-A, consisting of a notification, offering circular, and exhibits. The SEC staff will review this offering statement.
Regulation A offerings share many characteristics with registered offerings. For example, purchasers must be provided with an offering circular similar to a prospectus. Just as in registered offerings, the securities can be offered publicly, using general solicitation and advertising, and purchasers do not receive “restricted securities,” as explained below under the heading “Resales of restricted securities.” The principal differences between Regulation A offerings and registered public offerings are:
- financial statements for a Regulation A offering are simpler and do not need to be audited unless audited financial statements are otherwise available;
- Regulation A issuers do not incur either Exchange Act reporting obligations after the offering or Sarbanes-Oxley Act obligations applicable only to SEC reporting companies, unless the company meets the thresholds that trigger Exchange Act registration;
- companies may choose among three formats to prepare the Regulation A offering circular, one of which is a simplified question-and-answer document; and
- companies may “test the waters” to determine market interest in their securities before going through the expense of filing with the SEC.
SEC reporting companies are not eligible to use Regulation A. All other types of companies may use Regulation A, except development stage companies without a specified business (for example, “blank check companies”) and investment companies registered or required to be registered under the Investment Company Act of 1940. In most cases, shareholders may use Regulation A to resell up to $1.5 million of securities.
The “test the waters” provisions of Regulation A allow companies to publish or deliver a written document to prospective purchasers or make scripted radio or television broadcasts to determine whether there is an interest in their contemplated securities offering before filing an offering statement with the SEC. This gives companies the opportunity of being able to determine whether enough market interest in their securities exists before they incur the full range of legal, accounting, and other costs associated with filing an offering statement with the SEC. Companies may not, however, solicit or accept money for securities offered under Regulation A until the SEC staff completes its review of the filed offering statement and the company delivers offering materials to investors.
This is a great first step toward filing a full public offering, something the company’s president Mr. Laoruangroch must be planning with his claims of a much larger business in the near future. From the Investors Information page:
Through the new JOBS act signed into law in 2012, and the U.S. Securities and Exchange Commission, we will hold an IPO sale of stock for $50 million in Fall of 2013.
With the larger planned IPO, Prohibition Brands would need to become fully registered with the SEC as they’d fall well beyond the $10 million limit for qualifying for the Regulation A registration. Ivestopedia explains:
The issuer of a Regulation A offering has to provide buyers of the issue with an offering document whose content is similar to the prospectus in a registered offering. However, the advantages of a Reg A offering over a fully registered offering make up for this somewhat onerous requirement. These advantages include – simpler financial statements that do not have to be audited, no Exchange Act reporting requirements until the company has more than $10 million in assets and more than 500 shareholders, and the choice of three formats to prepare the offering circular.
MMJ Business Daily also featured the company this week in it’s Weekly Round-up, noting the developments at Prohibition Brands come ‘on the heals’ of other grandiose claims from Diego Pellicer owner and former Microsoft manager whose plans include operating a multi-state dispensary business.
These businesses showcase the amount of money and interest flooding into the expanding industry from professionals and dreamers alike.
We have linked the filing for Prohibition Brands below:
View the Regulation A filing at the SEC website.