| NEW YORK
NEW YORK Aug 20 Investors in marijuana-related
stocks may see their profits go up in smoke, U.S. regulators
said on Tuesday.
The Financial Industry Regulatory Authority, Wall Street's
industry-funded watchdog, warned that scammers have been
targeting investors attempting to tap into the growing U.S.
Nearly 20 states permit the use of marijuana for medical
purposes, and voters in Washington and Colorado recently made
recreational use legal as well.
FINRA said red flags for investors range from the classic
"pump and dump" - in which con artists boost the price of thinly
traded stocks by misleading investors about a company's
potential, then sell their shares at a peak - to executives with
The chief executive of one company that says it is in the
medical marijuana business spent nine years in prison for
operating one of the largest drug smuggling operations in U.S.
history, while the former head of another marijuana-related
company was recently indicted for his role in a mortgage-based
Ponzi scheme, the watchdog said. FINRA did not name the
companies or the individual.
The majority of marijuana-related companies are so-called
penny stocks that trade on the over-the counter-markets, which
do not have the liquidity and reporting requirements of major
exchanges such as the New York Stock Exchange and Nasdaq
Marijuana remains illegal under federal law, severely
limiting the avenues for legitimate investments. But private
equity firms, whose investors tend to be institutions or
affluent individuals, have been buying medical marijuana
companies in anticipation of federal law eventually changing.
Seattle-based Privateer Holdings is thought to be the first
firm to openly invest in the medical marijuana industry. It has
raised a reported $7 million from investors.
Major tobacco companies such as Phillip Morris have
not announced any plans to sell marijuana in states where it is