Crowdfunding seemed like the perfect solution for cannabis entrepreneur Ralf-Rainer von Albedyhll, CEO of NextRX Inc., based in Las Vegas, Nevada. He had tried the more traditional funding avenues with little success and when he learned about crowdfunding, he aggressively pursued it and joined the “crowd” on the StartEngine.com platform. All was going well until it wasn’t and von Albedyhll’s campaign was halted on the platform because of its cannabis connection.

MJINews staff caught up with von Albedyhll to talk about his experience and what’s next now that StartEngine isn’t a part of the crowd.

MJINews: Tell us about your firm and your decision to crowdfund it.

 von Albedyhll: I am a serial entrepreneur—www.iapprentice.com. I was at a party and one of my former employees told me that he had recently become a medical marijuana patient. He was disturbed by how troublesome it was to register with dispensaries and that he had to provide his ID and the original recommendations at each site. I immediately saw an opportunity to solve a problem and that’s what brought me into the industry and was the genesis of NextRX.

At the beginning we attended many Arcview events, which are always enjoyable, but, for us at least, we were never successful in obtaining financing. It was very frustrating and costly both in terms of time and money.

In November of 2015 I attended an event in Los Angeles hosted by NextGen Crowdfunding, where I learned about Regulation CF, equity crowdfunding, which was slated to begin May 16, 2016. I also got to know Howard Marks, one of the founders of StartEngine based in Santa Monica, California. He told me that StartEngine was determined to be one of the first platforms out there with CF listings once it became legal.

In light of our past experience it was a no-brainer to embrace this new opportunity to appeal for funding directly to the very people who were frustrated by the headache of registering with dispensaries not to mention the security of their information, since they had reason to believe that data protection was not the top priority at many of the dispensaries they visited.

On April 18, we were invited to apply to list on StartEngine. While startups typically want as few as possible shareholders to minimize problems, NextRX wanted as many shareholders as we could get—not just to raise funding but hopefully to gain passionate evangelists for the system and hence brand. Obviously that is a risky proposition since your supporters will hold you accountable so the strategy can easily backfire.

At the same time, the prospect of being one of the first out of the gate with a compelling solution in an exciting industry meant a high probability of getting free national and even international media exposure, which in turn would hopefully lead to the short campaign filling up quickly. Nothing attracts success like success, so the hope was to follow a swiftly oversubscribed first $80,000 campaign with a second one for $500,000.

Going through the registration process of StartEngine was very time-consuming and expensive. In total we spent about $20,000 with all of the legal, accounting fees and movie production. We even developed a special database to help keep track of all the required documentation and information.

The biggest challenge was getting everything, including making a compelling video, done by May 13 — the StartEngine deadline for getting listed by May 16.

However, the beauty of the opportunity was that you are not appealing to traditional investors but rather recruiting supporters of a bold vision. That meant that we could create a video that clearly showed the typical headaches patients faced and how the RX-Pass is an obvious solution to their problems.

For a regular equity campaign the video would have usually focused on all the stuff “sophisticated” investors understandably expect — market size, competition, team, etc. It’s a tough job to make an interesting video when the boring stuff plays such a big role. It also marks a key difference in the future between equity crowdfunding for startups, by which I mean companies that are less than one-year old, because the main goal will be to sell the vision to gain support. All the other stuff will still be there as required by law, but the focus is likely to be on the vision. After all, what meaningful financial data is to be expected from a young startup? The wisdom of the crowd is pitted against the experience of “the experts.”

MJINews: Tell us about your experience with the crowdfunding decision. What did it involve and how did you choose the program?

von Albedyhll: We were delighted to see that the people at StartEngine and CrowdCheck, who were responsible for the due diligence, were great teams that worked tirelessly. NextRX was elated to be one of the first startups out of the gate on the first day of this new equity crowdfunding world.

MJINews: What happened when you were pulled from the platform? What’s next? Fight, or move on?

von Albedyhll: Sadly, the euphoria lasted less than 48 hours. By Tuesday late afternoon we were informed by our contact at StartEngine that the escrow bank they had contracted with to handle all campaigns absolutely refused to handle ours for fear of losing its banking license. The problem was that NextRX is engaged in the cannabis industry—even if only on the ancillary side. StartEngine removed the campaign from its active listings page as well as the Invest button rendering it effectively stopped if not cancelled. The campaign page is still accessible from the www.nextrx.net website.

Ironically, StartEngine was as surprised by this as we were since they already have a campaign running for Med-X, which is decidedly cannabis-related. The problem appears to be that Med-x is a Title IV listing while NextRX is listed under Reg. CF. The difference is that for CF campaigns the SEC appears to require a separate escrow processing bank, while for the other campaigns FundAmerica, the backend transaction processor, can handle both functions.

We put together a database with all of the funding sites we could find to ascertain other potential avenues for our campaign. WeFunder is by far the most active and indeed has the most developed system from what we can tell. Sadly, they have the very same problem with their escrow bank and thus cannot take the campaign.

Since this appears to be a fundamental problem that will only resolved when a crowdfunding platform finds a cannabis-friendly escrow bank or the SEC changes what is arguably an unnecessary rule, the best course of action would be to list internationally on a platform like Sweden’s FundedByMe or to move up to a Title IV funding like Med-X. The jury is still out on which direction we will take.