As the budding shares of medical marijuana companies achieve new highs, the bureaucrats at the Canadian Securities Administration (CSA) are urging investors to be cautious when investing in the new and growing crop of pot stocks.
So concerned are regulators they took the step of issuing an official warning. Posted Tuesday, the CSA memo underscores what anyone familiar with venture stock exchanges understands: The bushy new business idea these days is pot.
In Colorado the legalization of marijuana has led to a new and booming economic sector. Taxes and revenue are shifting from the underground to the legitimate economy. Those involved are making money. The emergence of a new business sector in mature, over-serviced western economies is attracting scattered, though intent, attention.
In Canada Toronto mayer and pot-connoisseur Rob Ford was challenged in the last by George Smitherman. With Ford in office--and apparently smoking a lot of pot there--George is off the campaign trail and working at a medical marijuana company along with Kim Derry, a former deputy chief of the Toronto Police Service. Derry is no rank law enforcement amateur. He joined the force in 1973, worked in uniform and undercover, eventually became responsible for 4,000 uniform officers in Toronto's 17 Division. He seems to have a sense of the size of the budding opportunity. Derry's and Smitherman's new company is just one of many that taken root recently.
But the CSA warns investors that some of the new pot stocks being rolled out on stock exchanges are not all primo quality. According to the CSA many of the new issues are skunky, more smoke than fire. "A number of small or inactive reporting issuers are announcing medical marijuana business plans. In many of these cases, just the announcement of intent to develop a medical marijuana business has resulted in an immediate rise in a company's stock price. The CSA is concerned investors may face financial harm by purchasing such shares at an inflated price before there is a viable business,” reads the warning.
How to tell what corporate seedlings will flower? The CSA suggests investors should be aware that companies cannot legally conduct a medical marijuana business without a licence from Health Canada. There is a "significant time and cost required to obtain such a licence...There is no assurance that a company announcing its intent to enter the medical marijuana industry will be successful in obtaining a licence, or in creating shareholder value."
That is, don't be lazy, make sure there is a license: The official Health Canada list of companies that have received the necessary permitting is here
The CSA warning comes in the wake of a similar warning from the United States Securities and Exchange Commission. Maybe it took a while to remember where they put the fax machine.