A financial regulators is warning investors to be wary of a growing number of marijuana stock scams.
The Financial Industry Regulatory Authority (FINRA) issued an investor alert Monday warning that the burgeoning market for medical and recreational marijuana is leading to an uptick in con artists pushing investment opportunities that are too good to be true.
Medical marijuana is legal in nearly 20 states, and two states have legalized it for recreational use. That push toward legal usage is attracting con artists who pitch investors to put money into companies claiming to be part of the growing industry.
The regulator warned of a growing number of overly optimistic sales pitches for potentially fraudulent marijuana companies. The scammers will oftentimes reach out to investors in a host of ways, usually unsolicited, promising massive financial returns from a company that has shown no proof of such robust potential.
Another company touting its medical marijuana bona fides had changed its name four times in the last decade, while another looking for investors had previously been a coffee business.
The regulator warned investors to do their homework before jumping into any marijuana investment. Officials recommend researching the players involved, including the person selling the investment, and looking for any relevant paperwork filed with the Securities and Exchange Commission. And investors should consider why they are getting such a fantastic investment opportunity dropped into their laps.
"Investors considering investing in a heavily touted, thinly traded company should question why a total stranger would tell them about a really great investment opportunity," said Gerri Walsh, FINRA's senior vice president for investor education. "In reality, there is likely no true opportunity."