Marijuana penny stocks are handing investors triple-digit gains thanks to the emerging marijuana market, which produced sales of $6.7 billion in North America in 2016.
However, investing in pot penny stocks is inherently risky.
Take Novo Integrated Sciences Inc. (OTCMKTS: NVOS), for example. Between Aug. 31 and Sept. 21, the company's share price soared 253.57% from $0.28 to $0.99 in just over three weeks of trading. We don't recommend buying Novo, however, since the stock's price has already fallen back to $0.64. Investors who bought in at $0.99 are looking at losses of 35.35%.
And the risks aren't just limited to volatility. These stocks can also turn out to be scams.
Marijuana stocks can be risky because a majority of them trade on over-the-counter (OTC) exchanges as opposed to major exchanges such as the Nasdaq or the New York Stock Exchange (NYSE). Stocks that trade on the OTC exchanges don't have as many reporting requirements, so they are ripe for scams.
Urgent: Top Three California Pot Stocks to Watch for the Biggest Gains - Learn How to Cash In Here
We have information on one particular pot stock that is currently under investigation by the SEC for dishonest activity. If the charges ring true, it could spell disaster for current investors...
Owning This Marijuana Penny Stock Is a Disaster for Investors
In June 2017, the SEC charged marijuana company CV Sciences Inc. (OTCMKTS: CVSI) with fraud. The charges claim that both the company and its CEO, Michael Mona, Jr., lied to investors through its misleading 2013 financial reports.
Throughout 2013, CVSI, which was called CannaVest at the time, was one of the top marijuana stocks to own. In that year alone, the company's share price soared 700% from $5 to a high of $40. In fact, it went even higher in January 2014, when it peaked at $69.90 per share.
What happened next was disastrous. Since hitting that high in January 2014, CVSI shares have plummeted 99.67% to their current price of $0.23 per share.
The June fraud charges from the SEC relate to activity during the time the company's share price shot through the roof, which is even more suspicious.
Back in 2013, CannaVest announced the acquisition of a company named PhytoSPHERE systems and over-reported the value of that new venture on its financial reports.
In the first two quarters of the year, CannaVest reported the value of the acquisition to be $35 million, much to the delight of shareholders. The problem is that Mona allegedly knew the value was much lower all along.
In Q3 of that same year, CannaVest finally reported the true value, which was $8 million dollars, or 77.1% lower than what it had been reporting all year. Reporting the actual value was the right thing to do, but not amending the Q1 or Q2 financial reports with the $35 million figure is the equivalent of fraud.
The SEC is alleging that Mona knew all along how much the acquisition was worth and reported a false figure on his company's financial reports as a means to manipulate its share price. The tanking share price after the real value was discovered shows that investors lost confidence in the stock.
The 3 Craziest Corporate Scandals of 2017
When a scandal hits a penny stock, it can be disastrous because these are already volatile stocks with low share prices. CVSI continues to trade today, but this could change in the blink of an eye should the company and its CEO be found guilty of the pending fraud charges.
Any more negative news for this stock could send its share price to zero or even result in halted trading, which would be a disaster for current shareholders.
This scandalous event might scare you away from all pot penny stocks, but there are some legitimate stocks that could return respectable gains. Here are just two tips that can help you safely invest in cannabis penny stocks while avoiding the scam companies...
Use These Two Tips for Safe Marijuana Penny Stock Investing
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When you decide to invest in any penny stock, it's vital that you are able to spot both good deals and potential scams. These two tips can help you safely invest in these stocks.
First, do some independent research on the company's financial condition.
Penny stock reporting can be sparse, but there is one report that you should be able to find on every company - its annual 10-K filing. When you download this report, read all of the information, but pay particularly close attention to the section related to executive compensation.
Ideally, you want to invest in companies whose CEO and top managers are receiving some or all of their compensation in stock options. This means that they are also invested in the company's success.
If the CEO and top management are only being paid cash, this could be a red flag meaning those managers don't care about or have no faith in the future of the company. This is probably not a good company to add to your cannabis stock watch list.
The second tip is to look out for possible penny stock "pump-and-dump" scams.
The way these play out is a salesperson or company will aggressively promote a stock as "the next big thing." You may receive unsolicited emails, phone calls, or even social media messages about a great investment opportunity.
Once you and a host of other investors put your money into the stock and drive up the share price, early investors and insiders will dump their shares. This earns them a massive profit and leaves unsuspecting investors holding worthless shares.
The best way to avoid these schemes is to be suspicious of stocks being aggressively promoted and always do independent research before making an investment decision.
Despite some potential scam stocks, there are plenty of legitimate profits available in the booming legal cannabis industry.
How to Cash In on California's Cannabis Explosion
An event of historic proportions is about to unfold in California's marijuana markets, and the amount of wealth expected to flow into this industry is record-breaking.
On Jan. 1, California will completely legalize cannabis for medical and recreational use - promising to spark a $20.2 BILLION industry in the Golden State alone.
The windfalls to be made here could be unprecedented - but only if you learn how to position yourself to profit.
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If you're serious about learning how to make millions from the marijuana markets, it's imperative you go here now.
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