This article originally appeared in Cannabis Trader on Nov. 13, 2015.
On Nov. 12, 2015, the Colorado Division of Securities issued an investor alert titled, “Are you an Informed Investor? The Next Big Thing.” The alert addressed the popularity of investments in marijuana, binary options and digital currencies, and how potential investors need to conduct due diligence before making any decisions.
With its focus on issues of market volatility, lack of data, federal illegality and scam artists, the alert’s discussion of marijuana is of particular interest to those hoping to enter the legal marijuana market.
“The secondary market for [legal marijuana] investments is limited and investors may have difficulty recouping their money,” the alert explained. “In some cases, the business may be forced to cease operations by law enforcement, leaving investors with no recourse to recover their funds.”
The alert also identified how forecasted profits are highly speculative because the legal marijuana industry is still an emerging market. In tandem with this factor, the alert discussed the potential for “pump-and-dump” schemes, which it defined as using “misinformation to pressure investors to get in on the ‘ground floor’ thereby pumping up the company’s share.”
With Colorado being the first state to legalize recreational marijuana, the Colorado Division of Securities has likely had to be extremely vigilant regarding marijuana-related investments in the state, while also fielding complaints related to them. The division has had to tackle issues of crowdfunding and illegal solicitation for marijuana-related businesses.
On July 1, 2014, Gerald Rome, the division’s commissioner, provided tips to avoid marijuana-related scams in an article published in Prime Time for Seniors, a Colorado-based publication for senior citizens. Rome offered tips for investors, including the need to consider the source of the investment opportunity and to read a company’s SEC filings, among others.
This latest investor alert from the Colorado Division of Securities ends with this advice: “Before making any decisions with your money, ask questions, do your homework and contact the Colorado Division of Securities.”