Speaking of fraud...just in time for the spooky season, the CSA has a warning for Canadians—don’t believe the hype when it comes to the latest generation of dodgy stocks.
October, of course, is Investor Education Month. Canadian Securities Administrators (CSA) have issued an appropriately frightening warning: Canadians should be extra careful about investing in the triumvirate of modern suspect securities—medical marijuana, “green” energy and digital currencies.
Remember the good old days when it was just gold stocks on the Vancouver stock exchange that couldn’t be trusted? Apparently we are into a whole new era of sketchy securities.
“Too often we see investors buying into the latest, greatest investment opportunity based on information that is light on details and promotes the investment as a ‘can’t miss’ opportunity,” Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission, is quoted as saying. “There is no such thing as a ‘can’t miss’ investment, and investors must take time to research the validity of the business, the risk factors involved and the investment’s suitability for meeting their personal finance goals.”
The boom in medical marijuana of late has been amazing. It seems like every potential entrepreneur has landed in the sector. The number of companies outstanding in this area is growing. A medical marijuana producer named Tweed went public via a reverse takeover of a listed company in April and is now valued at $101-million. The Globe and Mail reports this week a a larger group including Mettrum Ltd., OrganiGram Inc., Bedrocan Canada Inc. and PharmaCan Capital (a holding company involved with three licensed producers) will shortly join Tweed on the TSX Venture Exchange.
Some will argue these stocks are just fine, that this is like investing in Molson’s in the 1786. At least there is a new investment beyond the “in-debted consumer”-Dollarama play that has been so popular over the last couple of years. But according to the CSA there are a number of steps investors should complete before they invest.
First up, “Learn more about the company and the product it is offering.” Whether this involves testing the product the CSA does not say. But the regulators did offer these guidelines for analyzing new issues:
- What is its strategy and timeline?
- Is there a market for the product?
- What stage of development is it in?
- What resources (such as cash, permits, technical capabilities and leadership) are currently available and committed?
- Identify the risks by using the CSA’s National Registration Search to check the registration status and past history of the individual or firm offering the investment opportunity.
- Find out if the individuals offering the investment opportunity are on the CSA Disciplined Persons List.
- Determine if the investment meets your own investing criteria, such as the minimum investment amount, the risk profile and the type of investment.