Marijuana penny stocks can offer explosive triple-digit gains in a matter of days, but the investment opportunity in the $6.7 billion legal North American industry is also leading to scams.
Money Morning believes the right pot stocks will still reward forward-thinking investors, but you just have to be careful with where you invest your money.
Here's more about an example of one cannabis company accused of fraud, plus two tips on how to avoid marijuana penny stock scams in 2018...
How to Avoid Marijuana Penny Stock Scams
CV Sciences Inc. (OTCMKTS: CVSI), formerly known as CannaVest, was charged with fraud by the U.S. Securities and Exchange Commission (SEC) on June 16, 2017.
The SEC alleges CVSI falsified its 2013 balance sheets.
Specifically, CV Sciences said it paid $35 million for biotech company PhytoSPHERE Systems in 2013.
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However, the SEC alleges CVSI paid just $8 million. It's financial fraud when a company intentionally records the wrong numbers on its financial reports, according to the SEC.
While trading hasn't been suspended on CVSI, it's still a possibility should the company and CVSI CEO Michael Mona, Jr., be found guilty.
Of course, there's no way to completely avoid marijuana penny stock scams.
But our two cannabis investing tips can help protect you and your portfolio. And knowing these tips are imperative for safely investing in marijuana penny stocks.
Marijuana Penny Stocks Investing Tip, No. 2: Watch for Name Changes
Before investing in any marijuana penny stock, always research both the stock and the company's history.
Companies committing scams are known to frequently change their names in order to fly under the radar.
The Financial Industry Regulatory Authority (FINRA) says that a company frequently changing its name is becoming synonymous with fraud in penny stocks. FINRA has not provided a list of specific companies that use this tactic.
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However, the financial regulator did say one company has changed its name four times in the last 10 years.
To find these name changes, FINRA suggests investors look through a company's press releases and quarterly reports.
Aside from avoiding companies with frequent name changes, this is the other most important tip to safely invest in cannabis penny stocks in 2018...
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