The recent boom in pot penny stocks almost seems too good to be true - and according to the U.S. Securities & Exchange Commission, it might very well be.
In the past few weeks, the SEC has been investigating several pot stocks - eight of which have now been temporarily suspended. According to the SEC, the suspended marijuana stocks were in violation of serious regulations, including instances of "manipulative transactions" and "unlawful distribution of securities."
Those eight include Fortitude Group Inc. (OTCMKTS: FRTD), FusionPharm Inc. (OTCMKTS: FSPM), CannaBusiness Group Inc. (OTCMKTS: CBGI), GrowLife Inc. (OTCMKTS: PHOT), Advanced Cannabis Solutions Inc. (OTCMKTS: CANN), Petrotech Oil and Gas Inc. (OTCMKTS: PTOG), Aventura Equities Inc. (OTCMKTS: AVNE), and Citadel ETF Inc. (OTCMKTS: CDFT).
The suspension's effects slammed shares when trading resumed. GrowLife, a California-based hydroponics company, saw its stock drop by 88% since March, when it had reached record-breaking highs.
Although some companies were hit harder than others, pot stocks collectively suffered after the SEC warned investors about "possible scams involving marijuana-related investment." The commission further noted that fraud risks tend to be higher in newly successful industries.
Interestingly enough, the Financial Industry Regulatory Authority issued its own warning back in August 2013 to no effect. Meanwhile, the SEC began suspending stocks in late March, first targeting a popular pot stock called Advanced Cannabis Solutions.
What Falling Pot Penny Stocks Mean for Investors
Of course, everyone knows that investing in the stock market includes volatility and risk. However, the scale of these recent plunges for marijuana stocks is rare, as Forbes wrote last month. The 420 Marijuana Index has fallen 62% since March. The pot stock bubble that ballooned between January and March of this year has provided a nice cushion for the industry, but growth has clearly not been outweighing loss in recent weeks.
As the numbers have been showing, this information has many investors quickly selling their stocks and never looking back. But perhaps they've been a bit too hasty...
For the resourceful investor, the crash offers opportunities to purchase shares while they're still low and reap the profits once the industry starts to rebuild the public trust. With the SEC keeping such a close eye on the market, the likelihood of fraud is also diminished.
Here are a few pot penny stocks on the rise:
1. Medical Marijuana Inc. (OTCMKTS: MJNA) - Medical Marijuana Inc. operates in the medical marijuana and industrial hemp industries, delivering products ranging from patented cannabinoid products to seed, stalk, and isolated, high-value extracts intended for pharmaceutical, nutraceutical, and cosmeceutical markets. The company's stock was trading at $0.202, which reflects a decrease of -5.16%. Share-trading volume has also gone down. However, the company still maintains a solid value of around $190.47M.
2. GrowBLOX Sciences Inc. (OTCMKTS: GBLX) - GrowBLOX Sciences Inc. is a research and biotechnical development company focused on manufacturing medical cannabis-producing technology and developing proprietary strains of cannabis for use in medical treatment. Despite a sharp decline of 11.6% on Friday, GrowBLOX jumped $1 in trading early Monday morning. This dramatic increase is likely due to the company's announcement of a "special use permit" for its marijuana establishment, which evidently relieved some SEC-planted concerns among traders.
3. Green and Hill Industries Inc. (OTCMKTS: GHIL) - Green and Hill Industries Inc. is a new company that offers services and products to the entertainment industry. Mainly, the company promotes new and established music artists, manufactures music products, and promotes sporting and entertainment events. GHIL recently teamed up with Rebagliati Gold Enterprises Inc. to help establish its own brand of marijuana plant-based products. GHIL first entered the scene with a record-breaking 34% upward surge and a close of $1.12. Over the past week, the stock has continually gained momentum, even doubling an already impressive stock-trading volume.