Tags: Vardi | marijuana | stock | SEC

Forbes's Vardi: Poof! Marijuana Stock Bubble Goes Up in Smoke

By    |   Wednesday, 28 May 2014 11:29 AM

The marijuana stock bubble that emerged earlier this year has been deflated, following actions by the Securities and Exchange Commission that have scared investors away from penny pot shares, according to Forbes columnist Nathan Vardi.

Pot stocks are different from other over-the-counter (OTC) bulletin board stocks and are buffeted by ongoing changes in various state laws on medical marijuana and recreational marijuana, in addition to uncertain interpretation of federal law.

"To the degree there has been a penny stock market boom in the U.S., it has been led by the marijuana sector," Vardi wrote.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


But now that leadership is frayed because the SEC has temporarily halted at least eight pot stocks in recent months on regulatory concerns over such matters as "manipulative transactions" and "unlawful distribution of securities," according to Vardi.

One popular pot stock, GrowLife, plummeted 88 percent from its March high after being temporarily halted.

Earlier this month, the SEC issued an investor alert warning about "possible scams involving marijuana-related investment," noting that "fraudsters often exploit the latest growth industry to lure investors with the promise of high returns."

As a result of the SEC's actions, the 420 Marijuana Index has sunk 62 percent since March, showing the damage also has been widespread among pot stocks not mentioned by the SEC.

"The allure of combining marijuana with penny stocks is strong, but for now investors seem to be spooked — worried that if their investments won't be undermined by a penny stock huckster, it will be by securities regulators," Vardi explained.

The SEC warned that "for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company's management, products, services and finances. When publicly available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors."

The cost of suspension from the OTC market by the SEC is high for pot stocks, which leads them to fall onto less-transparent Grey Sheets after a two-week halt, Benzinga reported.

"Suspension of trading is bad enough, but it appears the real punishment is in the aftermath, where investors must trade the stocks without bids and offers. Even if the SEC were to come out with a 'clean bill of health,' which it doesn't offer, the company would still be required to reapply for a market, which takes substantial time," Benzinga said.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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The marijuana stock bubble that emerged earlier this year has been deflated, following actions by the Securities and Exchange Commission that have scared investors away from penny pot shares, according to Forbes columnist Nathan Vardi.
Vardi, marijuana, stock, SEC
420
2014-29-28
Wednesday, 28 May 2014 11:29 AM
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