This Marijuana Stock News Stresses 2 Critical Investing Tips

Two recent marijuana stock news stories show how companies can easily defraud investors. Today, we're going to show you two easy ways to spot these shady companies so your money is never in jeopardy.

Marijuana Business Are Teaming Up with This Billion-Dollar Industry

Here at Money Morning, we've been following two unfolding marijuana penny stock scandals. Back in February, a company called mCig Inc. (OTCMKTS: MCIG) - which sells e-cigarettes used for vaping cannabis - was accused of unreported insider selling.

This was uncovered by Alan Rothstein, the founder of the website 420 Investor. He discovered a discrepancy in the company's 10-K filings, which are annual financial reports submitted to the U.S. Securities and Exchange Commission (SEC).

Two of the filings revealed that mCig CEO Paul Rosenberg had sold personal shares of the company without reporting the transaction. In 2016, Rosenberg owned 23 million shares of MCIG stock, but the 2016 filing showed he owned only 20.9 million.

CEOs have to file a Form 4 with the SEC when they sell shares, and Rosenberg failed to do so. An insider sale without formally filing and disclosing it to the public indicates Rosenberg may have been trying to mislead investors.

If the investors knew Rosenberg dumped his shares, they would've thought something was wrong with the company and followed suit. This would've inevitably sent the stock plunging, which is something no CEO ever wants to happen to their company.

But there's another scandal brewing that's even worse. This one was big enough for the SEC to file formal charges and launch an investigation...

This Marijuana Stock News Could Leave Investors with Losses

Back in June, the SEC charged CV Sciences Inc. (OTCMKTS: CVSI), also known as CannaVest, with fraud. The charges are related to the company's CEO intentionally reporting false finances back in 2013.

That year, CVSI was one of the top marijuana stocks on the market. Shares skyrocketed 700%,  from $5 to $40, in 2013. They eventually peaked at an all-time high of $69.90 in January 2014.

Special Report: Cannabis Is the Gold Rush of the 21st Century - 30 Stocks to Invest in Now. Details here...

Since then, CannaVest stock has suspiciously lost most of its value. It's plunged 99.7% from that $69.90 record high to just $0.23 today (Friday, Sept. 15).

And in June, CV Sciences CEO Michael Mona, Jr., allegedly reported that the value of the firm's assets were higher than they actually were...

marijuana stock news

Mona specifically said his company acquired PhytoSPHERE Systems - a biotech that makes hemp-based cannabinoids - for $35 million. Although this was the number Mona officially reported in the first half of 2013, he apparently knew the acquisition price tag was much lower.

In fact, CV Sciences reported an acquisition value of just $8 million during the third quarter of 2013. That was 77.1% lower than the $35 million initially reported. This popped up on the SEC's radar, and the agency found that CannaVest didn't acknowledge how the original $35 million was overstated in Q1 2013 and Q2 2013.

The agency claims this deliberate false recording is grounds for fraud, which is why the agency charged Mona last June. Since that penny stock story broke on June 16, CV Sciences stock is down 30.4%, from $0.30 to $0.23.

Although the SEC hasn't yet suspended trading on CVSI stock, it likely will if Mona and the company are found guilty.

If trading on CVSI is suspended, investors are at risk of seeing bigger losses than just the 30.4% loss they've already seen since June 16. They could even end up losing all of their initial investment because of CannaVest's irresponsible and fraudulent conduct.

While marijuana penny stock scams like CannaVest can entice you to avoid the marijuana industry entirely, investors who do so could be missing out on massive profits. There are easy ways to find out if a pot stock is safe enough for your money.

Our Money Morning experts are committed to making sure you know how to safely invest your hard-earned cash. That's why we're going to show you two easy tips for marijuana investing today...  

2 Easy Ways to Identify Potentially Dangerous Marijuana Stocks

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Our first marijuana investing tip is to beware of companies that frequently change their name.

According to the Financial Industry Regulatory Authority (FINRA), these companies are usually involved with fraud or manipulation.

And CannaVest, or CV Sciences, is perfect evidence of FINRA's claim. The firm was originally named CannaVest during the stock's peak performance in 2013. However, the name was eventually changed to CV Sciences after shares of the stock began to plummet in 2015 and 2016.

Although FINRA doesn't disclose the names of companies that do this, it provided one anonymous example that changed its name four times in the last decade. Oftentimes, these firms change their names to alter their image when their stocks perform poorly.

To seek out these name changes, FINRA advises digging through press releases and quarterly reports. These can be found in the SEC's EDGAR extensive filing database.

The second tip is to understand the risks of over-the-counter (OTC) exchanges...

Because marijuana is still illegal under federal rules, it's considered a fringe market, meaning most of these companies don't meet the requirements needed to list on the Nasdaq or the New York Stock Exchange (NYSE). That's why most of them trade on over-the-counter (OTC) exchanges.

FINRA states that there are hardly any minimum requirements for being listed on OTC exchanges. This is a major reason why the majority of penny stocks trading for mere cents are listed on them.

However, marijuana penny stocks trading over the counter can be volatile. That's because their trading volume is lower than traditional stocks, meaning an investor may be tempted to quickly buy or sell a stock if he or she sees a spike in volume.

Since they're so volatile, investors should only buy these OTC marijuana penny stocks if they can afford some risk. According to Money Morning Chief Investment Strategist Keith Fitz-Gerald, penny stocks in general should never make up more than 2% of your portfolio.

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