By Alan McGlade
The SEC is in the process of formalizing rules to allow “general solicitation”, or the ability to advertise the sale of private securities, to both accredited and non-accredited investors. The implementation of these rules is meant to fully enable the crowdfunding provision of the federal JOBS Act that was signed into law in 2012. Some who have been involved in the process believe that crowdfunding portals will be able to operate under these rules in a matter of months while many others believe the time horizon is substantially longer.
In the meantime, some states have enacted their own legislation which allows an exemption for “intrastate” crowdfunding where the business and investor reside within their state. These include Georgia, Kansas, Michigan, Idaho and most recently, Washington. Several other states have pending crowdfunding bills, the largest of which is Florida where the Florida Crowd Finance Act is being introduced in the current legislative session.
So why should individual states create an exemption for something that is already being dealt with at the national level? Here are five reasons:
States legislate locally all the time even though laws covering similar matters are in place at the federal level. The regulation of marijuana is a timely example. The sale and distribution of the substance is illegal under federal law but certain states decided to pursue a different path. Colorado legalized the sale of marijuana for both medical and recreational use at the end of last year and collected $3.5 million in incremental taxes in January alone. That has certainly caught the attention of other states seeking new revenue sources.