The Cannabis Safe: An Open-Source Fundraising Document for Cannabis Businesses

By David Hua, CEO and Co-Founder of Meadow

Raising capital has been a huge hurdle for many Black and Brown-owned businesses, and it’s one of the reasons the promises of social equity programs have yet to be fully realized. In an effort to level the playing field and streamline early-stage financing for social equity cannabis businesses, my team at Meadow, in collaboration with legal teams at Mayfield Venture Law, Leland, Parachini, Steinberg, Matzger & Melnick LLP, Clark Howell, and Greenbridge Corporate Counsel created an open-source compliant safe (simple agreement for future equity) to help the cannabis industry find cheaper money and have more opportunities to compete. A safe is a legal document that allows an investor to purchase stock in a future equity round of a company; cannabis startups and entrepreneurs can access this open-source fundraising document to raise capital with standard terms vetted by legal and regulatory experts, while allowing investors who may not be as familiar with the complexity of commercial cannabis to invest with confidence.

When we first launched Meadow in 2014, we used Y Combinator’s standard safe, which has been used by thousands of start-ups to raise hundreds of millions of dollars. This document helped us confidently and quickly raise $2.1 million in seed funding, reducing the time and cost associated with fundraising. One of the first checks we received was from Joe Montana of Liquid 2 Ventures–which was a really exciting moment for our whole team—especially knowing we had used these standard terms vetted by legal and regulatory experts. 

When my wife Stephanie, founder of the gourmet edibles company Mellows, was ready to raise funds, she used a modified version of the safe to include more cannabis-specific language and clauses because she was a plant-touching startup. About 20% of the funds she raised went to lawyers to ensure that the fundraising agreements she was using were properly structured to minimize liability and ensure that the terms were fair and legal. 

It occurred to us that there would be great value in creating an open-source version of the safe for our cannabis community, to help reduce the costs of fundraising, specifically for social equity operators who are raising funds in the industry. With the approval of Y Combinator, we recruited these four trusted legal teams to collaborate in modifying the original YC safe. We saw the shortcomings of pulling existing financing instruments off the shelf for a cannabis company given the complex regulatory landscape so we set out to create the first standardized, open-source fundraising document customized for cannabis. The cannabis safe is a trusted framework for entrepreneurs in our community who face the added burdens of strict industry regulations and an ongoing lack of banking and financial services. 

“After seeing so many early stage cannabis companies misuse the current forms of Safes available online, it became apparent the industry needed to create a document that worked for cannabis,” says Jason Kornfield, partner at Mayfield Venture Law. “The new cannabis safe addresses the key regulatory considerations a company should address when it comes to raising capital in the cannabis industry that the original safe does not contemplate.”

“For some of these companies, knocking a few thousand dollars out of transaction costs means another month’s rent,” says Jay Purcell, Attorney at Clark Howell. “Cannabis companies face a ton of taxes and expenses; we can help by eliminating as many transaction costs as possible.”

“The events of 2020 presented us with a unique opportunity to better our community by expanding upon the tools available to traditionally marginalized entrepreneurs and investors, alike, and Meadow helped us seize upon a part of that opportunity by proposing the cannabis SAFE,” says Lara DeCaro, Partner at Leland, Parachini, Steinberg, Matzger & Melnick LLP. “It combines language familiar to investors with language appropriate to protect the people who actually started the company, in what is hopefully a more accessible format for everyone. We need more education on all sides of these transactions but this was a solid start and I am honored to have been a part of that team.”

Our goal in modifying this document for our community was to reduce the cost of fundraising in an early-stage cannabis company and standardize terms with investors, allowing the startup cannabis ecosystem to thrive. We want to provide pathways for new cannabis operators and social equity applicants to get needed capital to their businesses faster and at a fraction of the cost. We want to create a thriving ecosystem for the licensed California cannabis industry, and that starts with access to trusted financing tools and resources. 

Download the cannabis safe.

 

About Meadow

Meadow builds powerful cannabis POS, eCommerce, delivery, and marketing software for dispensaries and delivery services. Its easy-to-use system is designed to establish a smarter, faster, and fully compliant way to do business. Meadow’s all-in-one platform combines POS with inventory, delivery, loyalty, intake, compliance, reporting, mobile marketing, and strategic integrations including Weedmaps, Leafly, Elo, and Onfleet. Meadow launched in 2014 as Y Combinator’s first-ever cannabis startup; its team is dedicated to providing the best retail software in cannabis and creating a more collaborative and inclusive industry. 

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