- The Securities and Exchange Commission said Thursday that marijuana stocks were a hotbed of potential stock manipulation.
- The agency says to watch out for guaranteed returns, unregistered sellers, or unsolicited offers.
“If you are thinking about investing in a marijuana-related company, you should beware of the risks of investment fraud and market manipulation,” the Securities and Exchange Commission said in a press release Thursday. “Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam.”
Among the agency’s warning flags are unregistered stock sellers, guaranteed returns, or unsolicited offers to buy a stock.
Most marijuana companies are traded on Canadian exchanges due to the country’s more lax laws when it comes to cannabis. Still, however, a handful are traded in the US, including the three-largest producers by market cap, due to the companies’ need for exposure to American capital markets.
And while the industry is still in elementary stages of development, many of the stocks have soared. Tilray, for example, has seen its market value more than triple since going public in July.
That skyrocketing growth has naturally piqued the curiosity of institutional investors and retail investors alike. When Constellation Brands, the behemoth behind popular alcoholic drinks like Corona and Svedka, invested in Canopy Growth, it’s stock rose more than 100%.
On Robinhood – the no-fee stock trading app popular among younger investors – weed stocks are easily among the most popular investments. Cronos is currently held by 106,000 investors, making it the 11th most-popular stock on the platform, while Canopy Growth and Tilray rank 21st and 49th, respectively.
Other smaller marijuana companies trade on the over-the-counter market, which could make them more susceptible to manipulation, the SEC says.
“Fraudsters may manipulate stock prices (for example, causing them to rise or fall dramatically) by spreading false and misleading information about a company,” the warning reads.
“Microcap stocks, some of which are penny stocks and/or nanocap stocks, may be more susceptible to market manipulation than stocks of larger companies.”
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