Despite $700 million in marijuana sales last year alone, Colorado officials are warning investors to think twice before putting their money into cannabis companies.
The reason: There’s a relatively high risk of getting sucked into a scam.
The Colorado Division of Securities has put out an alert that cautions investors against betting capital on a trio of investments it considers risky: marijuana-related companies, binary options and digital currency.
“What they all have in common is their recent emergence as three investments that both sellers and buyers hope will become the ‘next big thing,’” Colorado Securities Commissioner Gerald Rome said in the alert. “Marijuana investment opportunities could be particularly susceptible to scams, such as ‘pump-and-dump,’ in which promoters use misinformation to pressure investors to get in on the ‘ground floor.’”
The warning comes at a time when a string of marijuana-related companies have announced significant capital raises, often in the seven-figure range.
In terms of public companies, marijuana-related stocks are listed on the thinly traded over-the-counter market, where financial reporting requirements are minimal. That makes it difficult for investors to determine the true health of a business – and in some cases even figure out what the company does.