Marijuana Stock Warning From the SEC

Tickers in this article: CANN CBGI FSPM PHOT PTOG

NEW YORK ( TheStreet) -- The Securities Exchange Commission issued an investor alert  because of the increasing number of complaints about marijuana stocks. Since the beginning of March, the SEC temporarily suspended trading of five different companies for a variety of reasons related to the veracity of their claims to be involved in a marijuana businesses. Suspicions abound that some companies were simply an attempt to capitalize on the "green rush."

The five companies included FusionPharm , Cannabusiness Group , GrowLife , Advanced Cannabis Solutions and Petrotech Oil & Gas . The SEC said two of the suspensions involved potentially illegal activity including unlawful sales of securities and market manipulation.

The SEC warned investors to look for the following:

  • SEC trading suspensions
  • E-mail and fax spam recommending a stock
  • Insiders owning large amounts of the stock
  • False or exaggerated press releases

The SEC also noted that most of these companies were microcaps that were traded on the OTC Bulletin board and don't have to meet any minimum financial standards. The SEC wrote, "Information about microcap companies can be extremely difficult to find, making it less likely that quoted prices in the market reflect full and complete information about the company."

FusionPharm is a Denver-based company that claims to make cultivation systems for cannabis growers. The SEC has suspended trading from May 16 to May 30 "due to a lack of current and accurate information about the company because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) the company's assets; (2) the company's revenues; (3) the company's financial statements; (4) the company's business transactions; and (5) the company's current financial condition."

Cannabusiness Group is suspended from May 7 to May 20. The SEC wrote it was "temporarily suspended trading in the securities of CBGI because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the company's operations." Cannabusiness said "we are in the process of researching this issue and will answer all questions to the best of our ability that the SEC has. Also, during the suspension we will continue to operate our company along with our subsidiaries as usual." They also apologized to shareholders for the phones being busy. "We know that shareholders would like to have their questions answered and our phones have been busy all day, however we have no other information than this right now and will update the public as we can." Cannabusiness brought some of this trouble onto themselves when they copied statements from other company's announcements.

GrowLife's suspension from April 10 to April 24 was a little more serious because questions had been raised about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in GrowLife's common stock. Trading returned for GrowLife, but the stock hasn't really recovered, dropping from roughly $0.60 prior to the halt to currently ten cents a share.