Marijuana stocks have federal regulators screaming. And it’s time to listen up.
Marijuana stocks are bad news, we’ve pointed out again and again. Of course, that doesn’t mean we’re bearish on the legalized pot industry… but the pitfalls of marijuana stocks for individual investors are far different than the business of growing, selling or even buying pot where it is legal.
Sometimes shares in a great company are still a sell because of, say, valuation. And sometimes shares in a dumpster fire are a buy because, for example, a turnaround plan is working.
Likewise, there is a difference between the potential of a new industry and the companies seeking to exploit it.
Medical marijuana looks to have a bright future, for instance, and if marijuana is ever legalized on the federal level, there will be marijuana stocks that will benefit. But they won’t be the scores of over-the-counter stocks investors are piling into today.
There seems to be a misguided belief that these marijuana stocks have to go up simply because they’re associated with marijuana. Personal computers were a huge deal back in the day, but not every PC stock was a home run.
True, the first-mover advantage can be a powerful leg up for a young company, but not when the companies in question are so sketchy they could easily be scams.
The Securities and Exchange Commission is getting more complaints from investors in marijuana stocks. Indeed, they suspended trading on five marijuana stocks already, punishing shares.
From questions regarding the accuracy of publicly-available information about these companies’ operations to potential illegal activity, these marijuana stocks have incurred the wrath of federal regulators for good reason:
- GrowLife (PHOT)
- FusionPharm (FSPM)
- CannaBusiness Group (CBGI)
- Advanced Cannabis Solutions (CANN)
- Petrotech Oil and Gas (PTOG)
Marijuana Stocks Asking for Trouble
But it doesn’t end there. Investors should run away from all OTC marijuana stocks, including Medical Marijuana (MJNA), Cannabis Science (CBIS), CannaVest (CANV), MediSwipe (MWIP) and GreenGro Technologies (GRNH). As the SEC warns:
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.
The bottom line is that these are OTC stocks with little or no publicly available, audited information. OTC stocks are also a playground for pump-and-dump con artists. Why would you take the risk of having your entire position stolen by a criminal?
The marijuana industry may very well be big business one day, and there will be plenty of legitimate, listed marijuana stocks to play when that happens. But that day is still a far way off.
Besides, even if they’re on the up-and-up, the marijuana stocks that are popular right now have terrible financials. Not one of them has the revenue, profit or outlook to justify crazy-high market capitalizations we are seeing among marijuana stocks right now.
Most of these penny stocks have never made a penny in profits. They are dodgy as hell; The SEC and FINRA are warning investors away for a reason. What more do you need?
Legalized marijuana will be a boon one day, but we’re not there yet. Penny stocks in and of themselves are far too risky to buy in almost every case. Chances are, you’re throwing your money away.
I don’t own any marijuana stocks — long or short — and I never will. When it comes to marijuana stocks, just say no. This won’t end well.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.