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Regulators renew cautions about possible marijuana stock fraud

Marijuana is clearly gaining a reputation as a growth industry in the United States. Laws allowing the use of medical marijuana are on the books in California and are popping up across the country. In two states, laws allow a certain level of recreational use of the drug.

Whether you agree with the trend or not, the fact remains that movement seems to be toward relaxation of anti-marijuana laws. What that means from a business and investment standpoint is opportunity. And while there are certainly legitimate opportunities to advantage of, the field is bound to be rife with bad players.

Regulators warn that investors who don't take proper care could become victims of stock fraud and see their marijuana industry investments go up in smoke.

Readers may recall that we first wrote about this issue back in January. The purpose of that post was to relay a warning from the Financial Industry Regulatory Authority to consumers about supposedly "hot" microcap stocks in the burgeoning marijuana realm. And that warning has been reissued in just the past few weeks.

Regulators say the problem is that in too many instances, the stock offerings being made lack complete financial data or paint a prettier picture of projections than are justified. What can happen then is that stocks rise to some high-water mark, at which point scammers dump the shares they hold. They make a killing, but victims get stuck holding an empty bag.

The latest FINRA alert offers as an example the tale of one company that offered 30 new stock releases in one recent six-month period. Promotional claims, pushed out through social media channels, suggested the stock "could double in price soon." But when regulators looked into the firm's books, the accounting showed nothing but losses.

In the end, the old adage remains valid -- caveat emptor. That is, buyer beware.

Source: The Daily Transcript, "Do your research before investing in pot-related stocks," George Chamberlin, May 23, 2014 

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