The Securities and Exchange Commission recently stopped trading in Advanced Cannabis Solutions shares, which last traded for $29.99, and are up more than 800 percent over the last year. The SEC issued the order over questions about “whether certain undisclosed affiliates and shareholders (of ACS stock) engaged in unlawful distribution of securities.” ACS trades over the counter.
We have no opinion about ACS, but we do have an opinion regarding publicly traded pot stocks generally: BE CAREFUL. We are aware of many publicly traded pot companies that are trading at frothy levels that are not well-positioned to compete in the marijuana marketplace. In fact, it would be no exaggeration to state that for every one publicly traded marijuana stocks, there are ten privately held companies that are far more advanced in the market than the publicly traded company.
It almost seems that publicly traded stock companies are more focused on selling their stocks than on competing in the market. The herd mentality of investors seems to encourage this. Here’s how that basic logic works: Marijuana is booming. Therefore, marijuana businesses must be booming. In turn, all marijuana businesses must be booming. Therefore, I need to invest in a marijuana business. The only way I can easily invest in a marijuana business is to buy the stock in a publicly traded marijuana business. And so the stocks just keep booming.
We did a quick survey among the cannabis business lawyers at our firm regarding their investments in publicly traded marijuana companies and their reactions ranged from “no way” to “are you kidding?” Not a single lawyer has made that investment. Some did say that they respected a few of the publicly traded companies but had not invested because ther valuations are so high, particularly as compared to the uncertainties in the marketplace.
One of our well-known cannabis lawyers, Robert McVay, was interviewed by Seattle Weekly regarding publicly traded marijuana companies and he had this to say:
Robert McVay is a lawyer at CannaLaw Group, a Seattle-based firm that specializes in marijuana-related cases. He gets calls all the time from people who bought shares in a pot-related company only to find it was millions in debt or existed simply to separate suckers from their money.
“Just because a company’s listed ‘over-the-counter,’ it doesn’t mean they’re up to no good,” he says. “They could be doing it to get funding, and to get an idea of their market valuation. The problem is this is a new and exciting market for people, and there’s lots of new investors without much history. They make bad choices.”
We are not telling you whether to invest in publicly traded pot stocks or not, but we are saying that there are no sure things and that you should be really careful in choosing your marijuana stocks. Do your due diligence. There will be winners and losers in the cannabis industry just like in every other industry, and this is going to hold true for marijuana stocks as well. Plenty of high profile marijuana companies are going to fail (trust us on this as we have already seen this and we also have seen companies with big names with little to nothing behind them).
Similarly, plenty of as-yet-unknown marijuana companies will emerge and thrive. In fact, due to federal prohibitions, the marijuana business, more than maybe any other, seems to favor the quiet over the loud. That’s what we are seeing out there.
What about you?