The Colorado Division of Securities has issued an investment advisory for three industries: marijuana business, digital currency and ‘binary options,’ a type of stock trade that securities commissioner Gerald Rome said is “closer to gambling” than it is to investing.
In a statement, Rome said: “Marijuana investment opportunities could be particularly susceptible to scams, such as ‘pump-and-dump,’ in which promoters use misinformation to pressure investors to get in on the ‘ground floor’ thereby inflating the company’s share prices before being sold by the promoters.”
“Before you consider investing, make sure you understand what these products are, their benefits, and their risks.”
Both Colorado and Washington State released warnings using the same language. Below are the four key points from the section regarding marijuana investments:
The emerging marijuana market is highly volatile and only semi-legitimate because regulations for medical and recreational use vary greatly between states and jurisdictions. For this reason, the secondary market for these kinds of investments is limited and investors may have difficulty recouping their money. In some cases, the business may be forced to cease operations by law enforcement, leaving investors with no recourse to recover their funds.
The standard information investors use to make informed financial decisions is limited for many marijuana investments. For example, since this is an emerging market there would be no specific data on historical trends, making all forecasted profits extremely speculative.
Due to marijuana’s questionable legal status, there are limited traditional financial avenues for day-to-day and necessary business operational transactions. For example, most banks refuse to open business accounts for these companies, forcing them to transact on a cash-only basis with suppliers and other service providers.
Marijuana investment opportunities could be particularly susceptible to scams, such as “pump-and-dump,” which use misinformation to pressure investors to get in on the “ground floor” thereby pumping up the company’s share prices.
Photo Credit: matchfitskills
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