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Reefer madness: Pot company scams on the way

With the growth of legalized marijuana, regulators warn consumers to watch out for stock hyping scams, among other frauds.

By Mitch Lipka Aug 23, 2013 6:51PM
Traffic arrow on green pavement. © Pete Starman, PhotographerWith an increasing number of states allowing the use of marijuana for medical purposes, it stands to reason that the business of legally selling pot is growing like weeds. And with any growth business, con artists know how to work all the angles. So is it time to invest in pot futures or companies that are in the marijuana business?

Maybe, but beware who's pushing the stock. The Financial Industry Regulatory Authority (FINRA) issued a warning this week about marijuana stock scams.

The scams work like most so-called pump and dump schemes, according to FINRA. Con artists try to build interest in companies that don't have much going on by making them seem like they're up-and-coming. The idea is to get a lot of people to pour in investment capital (in other words, cash) and then cash out before those who put in their money realize their investment is worthless.

"Investors considering investing in a heavily touted, thinly traded company should question why a total stranger would tell them about a really great investment opportunity," said FINRA Senior Vice President Gerri Walsh. "In reality, there is likely no true opportunity."

Before investing, FINRA suggests checking whether the person pushing the stock is licensed by using FINRA's BrokerCheck as well as securities filings cataloged by the Securities and Exchange Commission.

Information used to con potential investors gets delivered by a variety of means. It could come in an email, a text, a tweet, a blog, or a variety of other methods. The idea is catch the attention of anyone who might think the investment idea makes sense.

FINRA in its warning noted one stock was heavily promoted with such claims as "could double its price SOON" yet had only been losing money.

Here are a few other tips from FINRA:
  • Consider the source and question why someone would choose you to share a great stock tip. The answer is that there is no good reason and it's probably a scam.
  • Remember that no one can promise an investment as no risk or is guaranteed. Anyone who makes those claims is blowing smoke.
  • Check out the people in the company. "For example, the CEO of one thinly traded, yet heavily touted, company that purports to be in the medical marijuana business spent nine years in prison for operating one of the largest drug smuggling operations in U.S. history," according to FINRA. "The former CEO of a similar company was recently indicted for his role in a multi-million dollar mortgage-based Ponzi scheme.
  • Understand the difference between the heavily regulated stock exchanges and over-the-counter stocks.

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Aug 23, 2013 10:30PM

Jan 2, 2014 5:28PM
The DJIA is down 130 points and all the pot stocks are flying high (pun intended) thanks to Colorado. LATF was up over 100% at one point today. CBIS strong too.
Aug 23, 2013 9:20PM

Like everything else I  would think of putting my money in to I do the research and find th facts pro or con, and always ask the one question of who is in charge, and run a back ground check with some of the people I have done business with in the past who have the know how to make money in investment ventures.

In my life time I have only invested in one company and it was mine as in trucking, gun business, and music management, as I am the most non committal person there is, and I will not deal with any bozo who is a hard sell BS'er, and I either walk away or throw their butts out the door, Skeptical in not even close to my thinking it is right or it is wrong, and if wrong your gone, and I still have my money.

There are times in the past where it was not an investment bt compassion for those who had less or nothing, and I gave my money away, for years until I was found out by the daughter of one of my boss', and she ratted me out, and then everyone knew about my gifts to others, you can only spend the money when you or your family have a need, and my family had everything that money could buy, and then some so I gave it away, and when I can I still do even living on a fixed income, and it always comes back to us when we need it.

St. Jude's Children's Hospital needs all the help it can get for those Babies and families who need it, so if you can give once, or as I do every pay day I set an automatic donation up just for this hospital.

Try to scam me, and even at my age I know there is a hospital bed that is calling your name.

Aug 24, 2013 6:20PM
Anything to do with "pot", medically or not, doesn't interest me. Although, flushing it down the toilet makes sense.
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