The Securities and Exchange Commission warned investors Friday about the potential for fraud in microcap companies that claim their operations relate to the marijuana industry, and it suspended trading in Denver-based FusionPharm Inc., which claims to make a professional cultivation system for use by cannabis growers among others.
FusionPharm is the fifth such company in which the SEC has suspended trading within the past two months. Other marijuana-related companies in which the SEC recently suspended trading are Irvine, Calif.-based Cannabusiness Group Inc., Woodland Hills, Calif.-based GrowLife Inc., Colorado Springs-based Advanced Cannabis Solutions Inc., and Bedford, Texas-based Petrotech Oil and Gas Inc.
Also on Friday, the SEC issued an investor alert warning about possible scams involving marijuana-related investments, noting that fraudsters often exploit the latest growth industry to lure investors with the promise of high returns.
“For marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services and finances,” the SEC’s alert says. “When publicly available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.”
Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, which prepared the investor alert, said in a statement that “we know from experience that fraudsters follow the headlines.”
Given the attention that marijuana-related companies have attracted recently, Schock said, “we urge investors to exercise caution when looking at investments in this space. Always thoroughly research the company – and the person selling the investment – before making a decision.”