Legal Pot Market Attracts Fraudulent Marijuana Investment Schemes

The spread of legal marijuana has led to an explosion of investments into cannabis companies. But before you get swept up in the “green gold rush,” you should understand the risks involved.

Investor alerts from the SEC, FINRA, and the NASAA, as well as brokerages such as TD Ameritrade, caution about cannabis stock-related investment fraud, market manipulation, high-risk, and volatility. It’s not just scam artists, however, who are taking advantage of investors. As the hype around “the next big thing” increases, stock brokers and financial advisers are also engaging in unscrupulous behavior.

The Business Trial Group’s attorneys have recovered millions of dollars for the victims of securities fraud, often succeeding in FINRA arbitration where other firms fail. Since we handle all investment loss cases on a contingency-fee basis, there are no upfront fees or costs, so you do not risk compounding your losses when you hire us to represent you.

Cannabis Industry Worth $10.4 Billion in 2018

The Business Trial Group has previously warned about deceptive marijuana-related investments. Since that time, marijuana legalization has expanded, and with it, investor-related issues.

Last year, recreational marijuana became legal in California, making it the largest legal U.S. marketplace. The legal marijuana industry was valued at $10.4 billion in 2018. Across North America, investors poured $10 million into cannabis—twice the amount invested in the previous three years combined. This momentum is expected to continue into 2019 and beyond. By 2025, the global legal marijuana market is estimated to be worth nearly $150 billion.

Even conservative states such as Utah and Oklahoma have embraced medical marijuana legalization. Abroad, Canada became the second country in the world to legalize recreational marijuana in 2018, joining Uruguay. Mexico is also on track to legalize marijuana, as are Luxembourg and South Africa. In the United States, the federal ban on pot remains a hurdle to commercialization, but already, corporate giants such as Coca-Cola are eyeing market entry.

Big Rewards, Big Risks

Growing investor enthusiasm over legal pot has been met by regulatory calls to pump the brakes.

On September 5, 2018, the SEC issued an Investor Alert over marijuana investments and fraud, warning investors to look out for:

• Unlicensed, unregistered sellers
• Offers of high or guaranteed returns with low risks
• Unsolicited offers
• Trading suspensions
• Company name changes
• Phony press releases

The SEC has taken recent enforcement action against several cannabis companies. It urges investors to perform due diligence and to understand the risks involved with investing in marijuana-related companies.

Similarly, FINRA warns about the ability of “hot” stocks to burn an investor’s portfolio. And the North American Securities Administrators Association (NASAA) cautions that investor enthusiasm for “the next big thing”—including cryptocurrencies and marijuana stocks—can make them susceptible to “pump and dump” scams.

TD Ameritrade, whose stock trading app is popular among traders looking to cash in on cannabis, has advised investors to steer clear of the industry altogether.

“The marijuana and cannabis industry—sometimes referred to as the Wild West of investing—is littered with high-flyers, potentially over-valued companies, and even scams,” the brokerage firm said in a video posted to its YouTube account. “As marijuana moves from the black market to the stock market, the potential opportunity is easy to see. This excitement, coupled with a hazy regulatory outlook, means extreme volatility and high-risk for investors.”

Should You Trust Your Broker?

Financial adviser misconduct is widespread and costs investors hundreds of millions of dollars per year. Advisers and brokers owe their clients duties and must obey securities regulations. There may be added temptation to abandon these rules when it comes to profiting from the burgeoning marijuana industry.

For example, if an adviser recommends that you invest in a risky marijuana stock that is not appropriate for your risk profile, this could be considered an unsuitable investment. Brokers must also completely and correctly present you with material information—including risks—associated with a cannabis stock. Failure to do so could be considered investment misrepresentation.

When a broker sells securities not offered by the brokerage firm, this is known as selling away. Although selling away can be legal, products that have not been subjected to a firm’s due diligence process are more likely to be high-risk or fraudulent. When a broker sells away and the client loses money on the investment, the brokerage firm can ultimately be held responsible for failure to supervise.

Contingency-Fee Investment Fraud Attorneys

If you suffered significant financial losses from investing in marijuana stocks, the Business Trial Group may be able to help. We represent victims of investment scams and broker misconduct on a contingency-fee basis, so you pay no upfront fees, and no fees at all unless we recover your losses.

Discuss your case with an attorney during a no-cost, no-obligation case review.