NEW YORK ( MainStreet) — Although there are similarities between the dotcom boom and the current cannabis green rush, penny stocks are an element that technology companies didn't have among their challenges at the turn of the century.

"The presence of cannabis penny stocks that are pumping their stocks is a distraction for companies looking to truly build a sustaining presence in the cannabis market," said Sam Znaimer, who is raising money for a venture capital fund called Locarno Capital, which will invest exclusively in legal cannabis companies. "That's not a stigma that the tech industry had to endure."

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About 30% of Poseidon Asset Management's hedge fund is invested in cannabis penny stocks, according to Morgan Paxhia, co-founder of the Poseidon Asset Management Hedge Fund in San Francisco.

"We're investing in the ancillary component of cannabis in both public and private holdings," said Paxhia who attended The Arc View Group Investor Network in Boston. "For example, software to keep track of inventory from seed to sale, equipment suppliers, grow facilities and packaging."

Well-known cannabis penny stocks include GrowLife ( PHOT), Cannabis Science (CBIS), GreenGrow (GRNH), Terra Tech (TRTC), Creative Edge Nutrition (FITX) and Advanced Cannabis Solutions (CANN), which was suspended from trading by the SEC until April 9, 2014 pending an investigation.

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"I know of a few successful penny stock-related hedge funds but it's difficult given the low liquidity in the sector," said Timothy Sykes, entrepreneur and penny stock expert in Miami. "As a precaution, many hedge funds discount illiquid penny stock investments so I'm curious how Poseidon is valuing their illiquid investments."

A former traditional venture capitalist who relied on pension funds, insurers and banks for funding, Znaimer is confident that launching a venture capital fund is the right thing to do with one caveat.

"My biggest challenge will be the speculative bubble in the public markets around cannabis penny stocks," Znaimer told MainStreet. "I will not be investing in public penny stocks. I am looking to build leaders and significant brands who are truly serving the cannabis industry not stock promotion."

The Canadian experienced success when he helped funded BelAir Networks in Ottawa in 2005 before it was acquired by Ericsson in 2012.

He also invested in Quic Financial Technologies in 2001, which was acquired by MarkIt in 2011, as well as Convedia, which Znaimer got involved with in 2001 before it was acquired in 2008 by Radisys.

"There is a huge evolution going on where cannabis companies that were under funded and in fear of being prosecuted are now becoming legitimate businesses and are using better systems in order to develop efficiencies in what they do," said Znaimer who was a general partner with Ventures West Capital, one of Canada's leading venture firms.