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INVESTOR ALERT: MARIJUANA-RELATED INVESTMENTS
May 16, 2017
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about potential risks involving investments in marijuana-related companies.
The SEC has seen an increase in the number of investor complaints regarding marijuana-related investments. The SEC recently issued temporary trading suspensions for the common stock of five different companies that claim their operations relate to the marijuana industry:
Cannabusiness Group, Inc.
Advanced Cannabis Solutions, Inc.
Petrotech Oil and Gas, Inc.
The SEC suspended trading in these companies because of questions regarding the accuracy of publicly-available information about these companies’ operations. For two of the companies, the trading suspensions were also based on potential illegal activity (unlawful sales of securities and market manipulation).
Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns. Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances. When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.
Risk of Prosecution for Marijuana-Related Companies. If you are considering investing in a company that is connected to the marijuana industry, be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “[T]he Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.”
Marijuana-related investments may be sold in unregistered offerings and may take many forms, including microcap stocks (low-priced stocks issued by the smallest of companies) such as penny stocks (the very lowest priced stocks).