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Regulation and Compliance > State Regulation > NASAA

NASAA Warns of Marijuana-Related Crowdfunding Scams

By Elizabeth Festa

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The North American Securities Administrators Association warned investors Monday to be wary of marijuana-related crowdfunding ventures and other risky or potentially fraudulent schemes that could swindle them out of money.

NASAA’s advisory identified several different schemes used by those looking to raise money for a venture or an outright fraud in the growing marijuana investment arena.

It warned that however well-intended, many of these ventures are not close to providing any guarantees.

“Even if marijuana is legal in a jurisdiction, and the promoters have no fraudulent intent, most marijuana-related investment opportunities are in high-risk startup ventures with a significant chance of failure,” the advisory stated.

Moreover, there are potential legal problems involved in marijuana investing, NASAA warned. Some jurisdictions as well as the U.S. government prohibit marijuana use.

NASAA cautioned investors to be aware of laws on the books now, no matter how much the spaces appear to be evolving.

In addition to the crowd-funding capital-raising model to persuade potential investors to fund a marijuana business, which can be risky due to capitalization issues, NASAA identified other ways investors could lose money in marijuana-related financial schemes.

These schemes include the illegal reverse merger scam, or the sales of stock in a company that has no assets or operations; NASAA outlined the classic misinformation-based “pump and dump” sales fraud and the insider-information scam based on supposed closely held information on a state that is about to pass a new marijuana legalization law.

NASAA urged investors to do their research and verify with securities databases, while avoiding pressure and seemingly convincing stories touting investment returns from press releases or other communications.

“Scammers are using the media buzz to convince investors to hand over money for risky or outright fraudulent marijuana ventures that go up in smoke, along with investors’ money,” NASAA warned.

— Check out SEC Does Not ‘Dictate’ Cyber Controls, Cyber Chief Says on ThinkAdvisor.

Elizabeth Festa

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