Canadian securities officials are warning investors to be cautious of publicly traded medical marijuana companies.
In a release, the Canadian Securities Administrators said that public companies could be misleading investors about their business plans and employing pump-and-dump techniques to raise their share prices.
Some of these businesses have attracted sizable interest from investors after simply announcing that they are pursuing a license from Health Canada to grow or sell cannabis.
“In many of these cases, just the announcement of intent to develop a medical marijuana business has resulted in an immediate rise in a company’s stock price,” regulators said. “The CSA is concerned investors may face financial harm by purchasing such shares at an inflated price before there is a viable business.”
Health Canada has received more than 850 applications from companies hoping to produce and sell marijuana, however it has issued just 13 business licenses. Many of the prospective licensees, however, are already promoting their businesses publicly.
The widespread media coverage of medical marijuana has driven investors toward the sector, officials said.
“We’re asking people to do their homework,” said Mark Dickey, a spokesman for the Alberta Securities Commission.
The move comes one month after the U.S. Securities and Exchange Commission warned investors about potential fraud in the cannabis sector. That warning was issued after the SEC halted trading of five companies in two months.