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Marijuana Goes Mainstream and Investing Scams Follow

HI9-18-13Pot is hot. As attitudes and laws change, marijuana is making news as the Next Big Thing in investing. And as always happens, alongside the legitimate potential for investing in the old hippie favorite come the scam artists, pushing a variety of get rich quick schemes that can snare unwary investors.

A recent CNN Money report notes that the number of spam emails related to marijuana investing schemes – along with a variety of other financial scams — has spiked just in the last year. The main strategy in these scams, according to federal fraud investigators, is called a “pump and dump” stock scam.

Here’s how it works. Scammers send unsolicited emails and post notices on social media sites touting the newest “hot stock,” in this case, marijuana. The aim is to stimulate interest – ad buying — in a low share and lightly traded stock that may or may not even be real. In the first phase of the scam – the “pump” – the rush of new buyers responding to the email and social campaigns pushes the stock prices up.

Then comes the “dump.” The scammers sell off those shares for a profit and disappear. With nothing to support them, the stock prices drop, those investors are left holding stocks that are suddenly worthless – and the hot commodity is now cold.

Fraud experts point out that while some scams like this are built on entirely fictitious or barely legitimate commodities, others are legitimate in their offerings, but the recruiting tactics are unscrupulous. And while federal scam busters continue to warn everyone not to open or respond to unsolicited emails, would be investors eager to make money from the next hot commodity continue to ignore that advice in numbers large enough to keep the scams going.

Marijuana is now legal – and taxable – in 20 states. And as more come on board, the opportunities for legitimate investing continue to expand, as growers, packagers and distributors all look toward a broader demand. For anyone interested in adding pot to the portfolio, — or any other kind of investment – fraud regulators recommend doing a bit of homework.

If you learn about an investing opportunity through an unsolicited email or notice, find out more about the company. See where the stock trades, and of possible, track down information on the person doing the selling through a service like BrokerCheck. If these all check out, the stock is likely safe. But offers showing up in spam emails may not have enough details to allow for that kind of investigation.

As Jason Hartman says, income property investing is really the surest way to build wealth form investments. But for investors interested in new opportunities like marijuana stocks, it’s essential to – er, weed out the scams from legitimate offers.  (Top image:Flickr/PabloEvans)

HIcken, Melanie. ‘Marijuana Stock Scams: Don’t Let Your Money Go Up In Smoke.” CNN Money. CNN.com 11 Sept 2013

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