Jessica VerSteeg answered the phone and apologized for her voice. She was hoarse following a series of interviews to promote her marijuana startup, Paragon, which hopes to raise $60 million starting Friday to fund its plan to become the WeWork of pot.
The former model turned chief executive officer skipped the traditional fundraising route. Instead of an initial public offering of shares, VerSteeg is going with a very 2017 idea: an initial coin offering, selling digital tokens dubbed ParagonCoin that cannabis firms or nonprofits would use to pay rent at the company’s planned co-working spaces, to be located where marijuana is legal. A successful deal will add to more than $2 billion raised by companies this year through ICOs, according to financial analysts at Autonomous Research LLC.
Leading up to the sale, the 30-year-old blanketed social media, posing on Instagram with the rapper The Game. On Twitter, she suggested that the cash found in a pair of jeans could buy some of her digital currency. On the company’s Facebook page, VerSteeg posted updates on the presale of coins, which sold out -- all in service to getting people to pay attention.
Also paying attention: regulators in Washington tasked with preventing investors from getting fleeced as ICO fever sweeps the country. The U.S. Securities and Exchange Commission warned the industry in July that if these tokens are effectively securities such as stocks or bonds, they must be registered with the regulator.
Following The News
The SEC is now monitoring the ParagonCoin deal and other pending ICOs to see whether they’re breaking that rule, according to a person familiar with the matter. Since many ICOs, including Paragon, are not registered with the regulator, the agency is keeping an eye on the market by following news reports on them, the person said. ParagonCoin hasn’t been accused of wrongdoing or triggered any SEC action.
“Our token’s not a security, it’s a utility,” she said in an interview. In addition to being used to pay, the coins will grant holders the right to vote on changes to how Paragon runs its business or to present ideas for how it could evolve, she said.
“The SEC is doing their job, they’re really trying to find the people breaking the rules,” VerSteeg said. “I’m actually thankful for them. I think to be scared of them means you’re doing something wrong.”
Any SEC enforcement action would hinge on the definition of a security. Under federal law, a security is typically created when investors provide money that funds a company with the intention of profiting from that company’s management. For example, when a jewelry store lends a customer money to buy a ring, that loan isn’t considered a security because the purpose is to increase sales. But if the company raises money through a stock sale to extend credit, that’s considered a security.
Cannabis Revolution