This Marijuana Penny Stock Investigation Could Jeopardize Investors' Money

These 4 Events Will Make Marijuana Investors Rich

Pot stocks have delivered double- and triple-digit returns to investors this year. Amfil Technologies Inc. (OTCMKTS: AMFE), for instance, is up a whopping 1,500% so far in 2017.

But there's still risk involved in this industry, as you'll see when we detail this latest marijuana penny stock scandal. We'll also show you two tips for avoiding similar scams in the future.

Here's more on the scandal that sparked an SEC investigation - and how you can avoid similar scams in 2018...

If You Own This Marijuana Penny Stock, Your Money Could Be in Jeopardy

The investigation involves CV Sciences Inc. (OTCMKTS: CVSI) - which also goes by the name CannaVest. It's a Las Vegas-based marijuana company that was charged with fraud back in June. The charge stemmed from CannaVest's CEO, Michael Mona, Jr., allegedly falsifying financial documents back in 2013.

marijuana penny stock

You see, CVSI was one of the top marijuana stocks of 2013. Before it was a penny stock, it surged 700%, from $5 per share to $40 over the course of that year. Shares even peaked near $70 in January 2014.

But CVSI's 700% gain in 2013 has been overshadowed by the stock's crash in value. As of Oct. 18, shares of CannaVest are down 99.7% from the $70 peak, to just $0.24.

CV Sciences is also down another 11.1% since June 16 - the date the SEC alleged Mona overstated one of the company's acquisitions in the first half of 2013. This led the company's investors and the SEC to believe the firm had more cash reserved for acquisitions than it actually did.

Pot Profits: Forget Jeff Sessions! These Five Canadian Pot Stocks Are Set to Skyrocket. Click Here...

The company specifically reported that it acquired PhytoSPHERE Systems - a hemp oil producer - for $35 million. But in the Q3 2013 filing, CannaVest reported a much lower acquisition value of $8 million. This sharp difference caught the SEC's attention, and the agency said the discrepancy was grounds for fraud. The SEC formally charged CV Sciences on June 16.

If Mona and his company are found guilty, the SEC could suspend trading on CVSI stock. And if that happens, it's possible that CVSI investors could endure worse than just the 11% loss they've already seen since June 16. They could end up losing all of their initial investment due to the firm's possibly intentional recording error.

While these kinds of marijuana penny stock scandals can convince you to stay away from the marijuana sector, investors who avoid it can miss out on profits. That's why we want to show you how to easily determine if a cannabis stock is a safe investment.

We at Money Morning want to make sure you can safely make money from the marijuana industry. With that in mind, here are two important ways to find safe marijuana stocks to buy...

Protect Yourself from Marijuana Stock Fraud with These 2 Tips

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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 firms 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 and 2014. 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 filing database.

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

Because marijuana is still illegal under federal law, 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 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 extremely 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.

Up Next: A Pot "Bombshell" Just Hit Canada

For our neighbors to the north, it's shocking news. But it could be the best news of all time for marijuana stock investors.

In fact, this single "bombshell" event could unleash a new pot stock boom that will blow the doors off anything we've seen up to this point. And by putting a couple of hundred bucks into a handful of tiny Canadian weed companies, you could pocket life-changing gains - turning a few hundred bucks into a fortune overnight.

Watch this now to get all the details...

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