Legal use of marijuana for medical or recreational purposes is becoming more common, but that doesn't mean it's an amazing investment opportunity.
Scammers are preying on a budding industry: marijuana.
Because medical marijuana is now legal in nearly 20 states and recreational use of pot is legal in two, it’s getting increased attention, the Financial Industry Regulatory Authority says. And anywhere there’s buzz, there are scams.
In fact, a lot of the buzz may come from scammers blowing smoke. FINRA warns of a company advertising online through sponsored links, investment profiles and spam email that claimed its marijuana stock “could double its price SOON.” Except, FINRA says, “the company’s balance sheet showed only losses, and the company stated elsewhere that it was only beginning to formulate a business plan.”
Marijuana stock scams can be promoted in lots of ways, including webinars, infomercials and blogs, FINRA says. They pitch investments in shares of small, thinly traded companies with virtually no history, then sell off the shares when they’ve peaked. Investors are then stranded with worthless stock in what’s being called a “pump and dump” scheme.
FINRA has a webpage on how to weed out the scams. Here are some of its main points:
- Ask why you’re so special. There’s no reason for a stranger to hand you a great investment opportunity. Most likely, these people are paid promoters of the company they’re pitching.
- Consider the source. Are they putting out lots of press releases or promotions over a short period? Is there any mention of risk? Have they recently changed their name or focus?
- Do your homework. Hopefully you wouldn’t invest in anything without doing solid research, but it’s especially important in a new market. Look up the corporate officials and major stakeholders, then check for indictments, convictions, lawsuits, investigations and complaints.
If you’re new to investing, there are better places to start. Check out the video below for some basic advice.