What is the goal here? Why are you releasing this token?
Several reasons, among them fundraising, liquidity and proof-of-concept.
The organization itself, the Mid Atlantic Growers Association is new and is raising funds to finance its own operations. This includes the hiring of people and things like office and printing costs. Also, this method, once proven, can serve as a viable fundraising method for other small businesses- see “proof-of-concept” below.
One innovation here is that the token brings liquidity to the private placement market. Private placement investments are typically not liquid. One must wait for a key event, such as “going public” or selling to a large corporation in order to get their money out and hopefully profit.
By linking shares in a small, private company to an NFT, a medium of exchange exists and the investment becomes more liquid. Further, by adding product-based benefits such as discounts on merchandise sold online, or service-based benefits such as exclusive admission to events or venues, the NFT can be made more valuable after it has been released into the market, whereas a work of art generally cannot.
Presently, securities laws place limits on the secondary market for private placements, i.e. re-selling them. One limitation is the investment cannot be placed on an exchange, such as a stock market, or in this case an NFT trading platform. Therefore, at the start, the Smokin’ Token will be re-sold only through private functions. Think of a showing at a private art gallery, where several works are on display. Over time, the Mid Atlantic Growers Association desires to work with the SEC and other agencies to design and implement insurable smart contracts that document investor accreditation, so that securities-based NFTs may one day be traded on financial exchanges.
Note: There is no indication that the SEC will engage in this discussion. They have not been approached concerning this innovation, and as of the writing of this document are likely not yet aware of it.
The many athletes and celebrities that are entering the Cannabis space would do well to consider coming together and aligning. They may have significant resources when compared to you and I, but compared to a tobacco company, they are small fish. They will simply be “divided and conquered” by large corporations.
The stockholder model allows these celebrities to come together under an effective governance model and compete against the large corporations as equals. A stockholder/NFT model as pioneered by the Mid Atlantic Growers Association should exist in every significant media market in recreation-legal states.
Why are you doing this NFT differently? Why a manual auction that takes 8 weeks? Everyone else’s takes 8 minutes?
Simply stated, the present DAO model is in conflict with securities laws, specifically Regulation D.
Sorry about the jargon, but it’s important so here goes:
When you sell shares in a company, the shares are considered securities, and are regulated by the Securities and Exchange Commission or SEC. Large companies have to register and this is a long and expensive process.
Smaller companies can issue shares under an exemption, known as Regulation D. There are three rules of importance here, Rule 504, Rule 505 and Rule 506.
Rule 504 limits your fundraising to $1 Million in 12 months, but what is key is that no more than 35 of those investors can be non-accredited, which basically means they are average people and not rich or sophisticated as investors. Also, you cannot advertise in any public way.
What this does is create a sort of “web of trust”- this is my term, not a legal term, but the thinking is that your investors who are average people will be somewhat protected because they know you and they are in your personal network, and are therefore less likely to be cheated or swindled. This is why you cannot advertise- you cannot promote your deal to strangers. (note- this is now 5 or 10 M. No more 35. No more rule 505).
Rule 505 is similar, but raises the limit to $5 million raised in 12 months. (this rule is obsolete and has been rolled into 504).
Rule 506 (c) allows advertising, unlimited fundraising, unlimited investors, but none of these investors can be “average people”, i.e. they must all be accredited investors.
So here is why the DAO model will not work at present: when a deal is announced nationwide and designed to sell out in minutes to a large number of people, these limits on advertising and the number of average investors participating are violated.
Now the DAO and NFT worlds are built on smart contracts, so over time, these issues can likely be handled through technology and logic, but we are not there yet.
That is why we are doing this differently, that is why the auction is “manual”, and that is why the process is expected to take up to 8 weeks. This has never been done before, the SEC is involved and we need to do this right. Also, there might be a better term than “manual”. Many portions may in fact be electronic. A better way of describing the process may be “Because of SEC regulations, administrative checkpoints may be inserted into the process”. As long as there is a clear understanding that this process will be different than with other NFTs.
Over time, other innovators will address, through smart contracts, different parts of this process. In that way, the Mid Atlantic Growers Association has offered a “clean” starting point that we expect to see improved upon. Our stand on this is that we are not hostile at all to the present NFT community. On the contrary, we want very much to work with the existing NFT community as the industry evolves to include securities.
So when you talk about the industry “evolving”, what do you mean?
There are two types of evolution we anticipate- let’s call them product evolution and market evolution.
Product evolution: Over time, smart contracts will address issues like the 35 investor limit. Also, people will be able to document their accreditation with a unique number (or similar) and use that to be accepted as an investor.
But equally as important, programmers will have to begin accepting end to end responsibility for the contracts they write. When a system is composed of many components or individuals, some of whom work in other countries where the laws are different, it becomes difficult to assign responsibility and accountability. Yet it must be done. And when a system is hacked, people cannot just walk away or point elsewhere. Someone must accept responsibility.
Market evolution: If programmers are to accept responsibility, they must be able to buy insurance at a reasonable cost. Similar to Errors and Omissions insurance, or medical malpractice, the market must exist. And it will likely not be perfect- witness the inefficiencies that routinely arise in the medical malpractice market.
So when a platform is hacked and tokens are stolen or simply disappear, someone is held responsible- at least financially so- and investors have a route to compensation other than the court system. Without these types of evolutionary changes, the DAO process will never be appropriate for financial securities.
Someone will undoubtedly point out that the insurance contract described herein can itself be a smart contract and packaged as an NFT, but that is another innovation for the future. The potential for both evolution and innovation should be clear, however.
The Mid Atlantic Growers Association looks forward to taking a leadership role and working constructively with both new and existing players as these necessary evolutions take place.
When do you expect the auction to begin?
Approximately September/October. We want to allow time for the respective communities of interest to discuss this.
Do you have a Discord server?
No. We need to make a strong statement that something is different here. No disrespect is intended to the present NFT community or its leaders by not using Discord. We will be hosting a forum on our site and introducing it on the Reddit platform.
OK, so I like the fundraising, your mission and I like the liquidity innovation and the membership benefits. But let’s get back to the shares of stock. What do I actually get?
You get a senior claim on the future cash flows of the Mid Atlantic Growers Association. If there is a profit sufficient to distribute some to owners and investors (the organization is a C Corporation), preferred shareholders will be paid first. You do not receive any voting rights
And where do these cash flows come from?
The revenue model for the Mid Atlantic Growers Association is to sell branded, premium smoking and vaping accessories online. Overhead will be very low. If the business finds loyal customers in this new, growing cannabis industry, the business will be very profitable.
It is important to note that preferred stock distributions will not come from either the sale or the appreciation of the NFT.
How to learn more and follow developments:
Visit www.MidAtlanticGrowersAssociation/community. Follow us. We encourage readers of the forum to leave comments. We look forward to adding features and value elements to the Smokin’ Token NFT, and to communicating with those who are interested.
About the CEO:
The CEO of the Mid Atlantic Growers Association is Steven A. Yergan. Raised in New Rochelle, New York, Steve was educated at Harvard (Biology, 1978); Harvard Business School (MBA, 1983); and spent several years with McKinsey & Company in their Los Angeles office.
Subsequently, Steve has spent 30+ years in the health care industry as a consultant, enterprise program manager and executive. Steve enjoys camping, fishing, cooking, photography, and National Parks, ideally all at the same time!