The Financial Industry Regulatory Authority, known as FINRA, cautioned investors about potential scams related to marijuana stock. Medical marijuana is legal in the District and almost 20 states. As activity increases in this sector, so have investment scams. Pitches for marijuana stocks may arrive in a variety of ways –fax, email or text messages, webinars, infomercials, tweets or blog posts.
FINRA explained that the con artists behind marijuana stock scams may try to entice investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly traded companies that often have little or no history of financial success. The scammers behind these "pump and dump" scams can then sell off their shares, leaving investors with worthless stock.
The Department of Insurance, Securities and Banking encourages investors to be careful when investing in marijuana stock and to do your research. One company highlighted in FINRA’s Marijuana Stock Scams investor alert was marketed on the Internet through sponsored links, investment profiles and spam email, including one promotional piece claiming the stock "could double its price SOON." Yet the company's balance sheet showed only losses, and the company stated elsewhere that it was only beginning to formulate a business plan.
As with every investment, it is important to review the complete prospectus. Remember also to check with our department to see whether the salesperson or promoter is licensed. You can reach us at (202) 727-8000. To learn more about this issue, contact DISB or visit FINRA’s website to view the full alert.