Bright Green Inc., a Nasdaq-traded marijuana business, is under fire once again for its bold proposal to raise $500 million using a federal investment scheme that specifically solicits immigrant investors. In a press release issued in February, the firm stated that it would invest EB-5 funds into expanding its “world-class production and medicine manufacturing facilities” in Grants, New Mexico.
Florida-based The funds will be used to fund federal clinical trials for drug development and further research and development by Bright Green. The CEO of Bright Green thinks this is “quite a new manner” to obtain capital in the current climate of the cannabis industry.
Yet EB-5 Immigrant Investor Program specialists are questioning the company’s usage of the investment vehicle. For eligible foreign investors, the program offers the chance to obtain permanent residency in the United States (a “green card”).
Experts Note That:
- As opposed to being the exclusive source of investment, the EB-5 program is typically utilized to enhance existing resources.
- Typically, hotels and other commercial real estate projects in areas with high unemployment rates are funded through the program.
- It would appear that no cannabis-related initiatives have been successful in obtaining financial backing.
- U.S. Citizenship and Immigration Services (USCIS) is in charge of running the EB-5 visa program. Since marijuana is a Schedule 1 substance, the federal Department of Homeland Security (DHS), of which this department is a component, is often viewed as being anti-cannabis.
- The corporation claims the DHS has approved its intentions, although it is unclear if this is the case.
- Many charges of fraud and litigation have been filed in connection with the EB-5 scheme.
When Bright Green began trading on the Nasdaq last May, it made headlines as the first company in its industry to do so. At one point, its worth hit $9 billion on the market. The stock symbol for Bright Green, BGXX, has dropped from nearly $60 to less than $1 as investors reevaluate the company’s prospects.
For months, the firm has been advertising that it had “conditional approval” from the United States Drug Enforcement Administration to grow cannabis for researchers. While Bright Green cannot promise full DEA approval, the company recognizes that it needs the agency’s blessing “in order to create income.”
Bright Green’s chief executive officer, Seamus McAuley, has commented on the EB-5 program, stating that the company’s expansive aspirations are a good fit. “The cost of acquiring financing these days is difficult in general, and the cannabis markets are not exempt to that in any way,” he said
To proceed with our business strategy, we needed to get funds, and this method looked unusual in that it didn’t include the usual complications and high costs associated with raising capital elsewhere. The statement was initially well received by investors, who drove the stock price up from 52 cents to $1.42. By Tuesday’s 4 p.m. ET closing bell, shares of Bright Green were trading at 89 cents on the Nasdaq.
Meanwhile, reports claim that New Mexico’s governor, Michelle Lujan Grisham, approves of Bright Green’s funding strategy. Having secured the necessary funding, “Bright Green can now develop and realize enormous medical prospects in the State,” the governor was quoted as saying in a press statement issued by the firm.
Unfortunately, Bright Green hasn’t managed to secure the necessary funding as of yet. According to McAuley, the program has already helped the company secure investment from a single source. The sum was not included in the announcement’s press release.
McAuley, whose employment agreement specifies that he resides in Ireland, informed that he intends to invest in Bright Green via EB-5 “as a demonstration of devotion to the company” and to acquire authorization to work in the United States.
How EB-5 Operates
To be eligible for a green card or permanent residency through the EB-5 program, foreign investors must invest at least $880,000 in a project in a targeted employment area (TEA), with the condition that the business creates at least ten full-time jobs.
Invest in the USA, a nonprofit trade group based in Washington, DC, reports that the program has attracted $37.9 billion in investments since 2008, with 2015 being the year that the program attracted the most investment, at over $7.5 billion (IIUSA).
Overall, the initiative attracted investments of around $435 million in 2022, according to data from IIUSA, which is less than Bright Green aims to raise. Hotels, homes, factories, and infrastructure are just some of the real estate categories that EB-5 has helped fund.
According to the IIUSA’s mapping tool, the area around Grants, New Mexico, where Bright Green plans to build its greenhouse, is rural enough to be classified as a TEA. According to IIUSA data, no projects involving cannabis have been sponsored in New Mexico through EB-5 since 2008.
Will USCIS Accept Cannabis Investment?
While Bright Green may eventually receive full DEA clearance to grow research cannabis, it is unclear if the company will be able to take advantage of the EB-5 program due to concerns raised by the USCIS and the DHS.
inquired as to whether or not DHS approval had been granted, but neither the USCIS nor EB-5 Affiliate Network, the consulting business and so-called “regional center” with which Bright Green is working, quickly answered. Not only was there no rapid response from the DHS, but even the FBI took some time.
An official from Bright Green confirmed that the USCIS had received and processed the company’s application and assigned it a new federal tax ID. An immigration attorney from California named Bernard Wolfsdorf called the DHS’s stance on cannabis “brutal,” and cited a 2019 USCIS notice warning that those who violate federal controlled substance law may lack “good moral character,” thus making them ineligible for immigration.
“The sheer fact that a lawful permanent resident who confesses having smoked marijuana cannot even become a US citizen implies that this would be a very dangerous immigration option for investors,” Wolfsdorf said in an email. Yet if Bright Green succeeds in getting itself recognized as a federally approved marijuana research farmer, it may be afforded some unique privileges.
The company has supposedly become the first plant-touching cannabis company to list on the Nasdaq since it obtained a memorandum of agreement from the Drug Enforcement Administration. There are a few more conditions that Bright Green must meet before it can be given the green light.
A representative for Bright Green wrote that the company’s practices “are not just entirely lawful; they are supported by recent federal actions,” such as:
- In October 2016, Vice President Joe Biden declared that the Obama administration would examine whether or not marijuana should continue to be classified as a Schedule 1 substance.
- Expanding federally permitted cannabis production and research is the goal of the recently signed federal Medicinal Marijuana and Cannabidiol Research Expansion Act.
- In an interview, IIUSA Executive Director Aaron Grau emphasized the need of obtaining DHS approval for EB-5 projects.
They can’t be thrown together at random and expected to work. Well, they must be acceptable, and Bright Green is, certainly. USAdvisors managing director and EB-5 investment due diligence expert Michael Gibson is skeptical of claims that the DHS has full control of the program.
“The Department of Homeland Security has very little understanding of what most of these projects are up to,” he said. Gibson claims that one of the biggest problems with the EB-5 program is that it is not as open as it could be.
Yet, neither the DHS nor the USCIS publicly discloses the number of audits conducted annually or the specific projects that have been evaluated. Observed Gibson. It’s “laughable” that “DHS or USCIS has any idea what 90% of these projects are up to,” he claimed.
High Risk and Fraud Allegations
The EB-5 program was created so that money might be raised for initiatives in regions with significant unemployment and poor economic activity. However, there have been issues, such as fake or partially successful investments, immigration lawyers accepting bribes to advocate particular investments, and ventures seeking funds in economically sound areas.
Gibson stated that the program’s ideal results would be for projects to be funded and for investors to earn a green card and a return on their investment. But he indicated that’s the least likely result. Instead, most of the time:
- A difficulty develops during the course of a project that has already been funded, and the company ultimately fails. Investors do get a green card through job creation, but there is a risk that they will lose their money.
- No work has begun on the project, but the funds have been placed in escrow. If no new jobs are created, the investor loses their chance at a green card. Nonetheless, there is still hope that they may see a return on their money.
- The project never gets off the ground, but the funds are put to use in ways that don’t contribute to the creation of new jobs, such as the buyer’s discretionary spending. This can cause the investor to lose their green card and eligibility for permanent residency.
Gibson claimed that the third possibility is what the EB-5 program is “renowned” for. As he put it, “unfortunately, for many,” he meant thousands of investors. To safeguard investments and verify that money is going to the correct places, President Biden signed the EB-5 Reform and Integrity Act in March 2022.
Gibson designed a two-page due-diligence checklist to assist investors in vetting possible projects, but he is unconvinced that it will help address the gaps exploited by rogue actors, especially with regard to transparency. Bright Green’s future success is dependent on receiving funding.
Funding key for Bright Green’s future
Since it is publicly traded on the Nasdaq, its pre-revenue position and deficits, which total in the tens of millions of dollars, are disclosed in quarterly reports. According to the financial report Bright Green filed with the U.S.
Securities and Exchange Commission for the third quarter, the company has sufficient working capital to pay its operational expenses for at least the next 12 months. Although the filing praises Bright Green’s potential, it also emphasizes the importance of raising more capital.
“The Company’s ongoing existence is reliant upon its ability to continue to execute its operating plan and receive additional debt or equity financing,” the statement states. Thus, money from outside investors is essential.
