The SEC names marijuana penny stocks, nanocap and microcap stocks as the riskiest
As marijuana stocks soar, the Securities and Exchange Commission wants investors to take caution. The SEC issued a press release on Thursday warning about the high potential of stock manipulation. The commission says fraudsters could sensationalize marijuana legalization as part of an investment scam.
In the press release, the SEC told investors to watch for red flags including unregistered stock sellers offering marijuana stocks, guaranteed returns, and unsolicited offers to buy. Only a handful of marijuana companies are traded in the United States.
The majority of publicly traded marijuana companies are only listed on Canadian exchanges, where the legal market has allowed unfettered growth and company values to skyrocket. Since going public in July, the market value of the marijuana company Tilray has more than tripled.
Cannabis stocks have become incredibly popular among younger investors in the last six months. On the mobile trading app Robinhood, marijuana company Cronos is the 11th-most popular stock. Canopy Growth ranks 21st on the app while Tilray ranks 49th.
According to the SEC, purchasing stock in bigger marijuana brands through a trusted source is not likely an issue. It is lesser-known companies traded on over-the-counter markets that carry the highest risk of fraud. The SEC listed penny stocks, nanocap, and microcap stocks as being the most susceptible to manipulation.
One form of fraud begins with the spread of false or misleading information about the company. This causes the company’s stock prices to rapidly rise or fall, creating instability and scamming investors into taking an ill-informed action.