Feds Warn against Risk of Stock Fraud Involving Marijuana Companies

Friday, May 30, 2014

A flood of marijuana-related companies have flooded the market, but the federal administration is not impressed. The Securities and Exchange Commission recently warned investors that the risk of fraud for investors, who put their money in marijuana-related industries, may be unacceptably high.

According to the Securities and Exchange Commission, over the past two months alone, it has suspended trading in five companies that were involved in the cannabis industry. One of those companies was a Denver-based firm that claimed to make a cultivation system that marijuana cultivators could use. There were issues regarding the company’s revenues and other financials.

The Securities and Exchange Commission is alarmed enough to issue an alert to investors, claiming that fraudsters are very often quick to exploit the natural human tendency to gravitate towards investing in new innovations and technologies. Many states have moved to make marijuana legal for medicinal purposes, including California. Colorado recently became the first state in the country to develop the sale of marijuana for recreational purposes.

As cannabis becomes more widely accepted, there has obviously been an increase in the number of companies that claim to operate in industries linked to the legalized cannabis industry. These companies are too small to be required to report to the Securities And Exchange Commission, and may be able to spread false information very quickly. Investors in these cases have too little information about the operations of the business the background of the promoters, and other important details that they need before they make a decision to invest in the company.

Some California-based pot companies have also had their trading suspended. The Securities and Exchange Commission has suspended trading for at least two California-based companies – Cannabusiness Group Inc. and Woodland Hills-based Grow-Life Inc.