On September 5, 2018 the Securities and Exchange Commission (“SEC”) issued an alert warning investors of scams involving marijuana related stocks. As the marijuana market becomes more mainstream, and legalization efforts continue to expand, there is an increasing number of publicly listed companies involved in the marijuana industry. The SEC alert noted a marked increase in the number of fraudulent schemes related to marijuana stocks.
Many marijuana stocks, such as Canopy Growth Corp (“$CGC”), Tilray (“$TLRY”) and Cronos ($CRON) have increased in value by several hundred percent within the last year. The enormous returns in this space may have attracted large amounts of speculative trading by retail investors. Where retail investors go, fraudulent securities schemes often follow.
As some analysts note, many Canadian listed marijuana stocks are now taking steps to list on US exchanges, so as to target US investors, and the increased trading volume and capital inflow that comes with a US listing. Many of these marijuana companies would be considered microcap stocks and can easily be subject to market manipulation. Stocks with small floats and low trading volume can be marketed to retail investors and manipulated in “pump and dump” schemes.
Securities analysts have also raised alert to the equity structuring and schedule of some larger marijuana stocks. Some companies such as Tilray, which have gone from approximately $30.00 a share to over $110.00 a share in less than three months, have a large amount of equity held in lock up, that will be released on a specific schedule. The amount of equity actually traded right now may be a small percentage of the total equity issued, meaning the active “float” is very small, and could be subject to wild price swings. Retail investors may or may not be aware of all the risks associated with this new and growing space of securities offering.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.