Pubdate: Tue, 22 Apr 2014
Source: Province, The (CN BC)
Copyright: 2014 Postmedia Network Inc.
Authors: Ian Austin and Susan Lazaruk


B.C. Regulators Warn That Big Profits Are Being Made By Medical-pot
Stock Speculators

Big profits are being made by share speculators in the emerging
marijuana industry, prompting a warning from B.C. regulators to beware
the green rush.

"Investors need to know that a lot of these startups fail," said
Richard Gilhooley of the B.C. Securities Commission.

Gilhooley was reacting to the storm of interest surrounding publicly
listed companies getting into the medical and non-medical marijuana
business in Canada and some U.S states.

Some of the biggest percentage gains, as high as 1,700 per cent, are
happening in the U.S., with investors speculating on marijuana penny
stocks, according to Bloomberg News.

Heavily-traded shares

In Canada, shares in Tweed Marijuana Inc. - an Ontario grower and the
first to begin trading on a Canadian exchange - were issued earlier
this month at 89 cents per unit and jumped to $4.50 after heavy early
morning trading before closing at $2.60 a share in the afternoon. The
shares closed at $3.35 on Friday.

Gilhooley said startups will sometimes aggressively market to push an
idea, with appeals like: "'What if this is the new Apple?' or 'What if
this is the (modern-day) Microsoft?'"

He said the biggest red flag with all stock promotion is the promise
of high return and no risk, when the opposite is true.

"You're going to have a lot of startup venture companies that are
going to fail, and only the strong will survive," he warned.

In Canada there are roughly 40,000 people with a permit to consume
medical pot. Health Canada has issued a dozen commercial grower
licences with many more in the works. Under the old system, licensed
individuals supplied the permitted users.

More than 300,000 permitted users by 2024

Health Canada estimates there will be more than 300,000 permitted
users by 2024, at which time the industry will be worth $1.3 billion.

In the U.S., the case is more dramatic, with Colorado allowing the
sale and taxation of pot to anyone of age who wants to buy it.

The Financial Industry Regulatory Authority in the U.S. issued a
warning in January for investors to be aware of U.S. marijuana stock
scams coming by fax, email or text messages, inviting investors to
webinars, infomercials, tweets or blog posts.

Consumers should beware of "'pump and dump' ploys," said the alert
posted to FINRA's website.

The "pump" is a lure that's optimistic and aggressive and sometimes
misleading or false, "designed to create unwarranted demand for shares
of a small, thinly traded company with little or no history of
financial success."

Once shares peak, those pushing the stock sell at a profit, leaving
others with worthless stock - the "dump."

In Vancouver, a mining stock that has turned to marijuana has already
seen profits.

Marijuana speculation

Next Gen Metals' share price spiked from five cents to more than 70
cents after the company sent out a dozen press releases over two
months ago about its plans to invest in marijuana companies through a
subsidiary Next Gen. The share price closed at 25 cents on Friday.
Other companies getting into the green include Growlife, Satori, Cavan
Ventures and Prominex Resources.

Next Gen Metals president Harry Barr told The Province he got the idea
to move into the marijuana industry after hearing about a
medical-marijuana investment opportunity on Vancouver Island.

"We had discussions with them and with a couple of other companies,"
said Barr, an enthusiastic salesman with the gift of gab.

"I decided there was a need for people who knew the capital markets,
knew about financing, knew how to run a public company - all those
things I've been doing since I was 23."

Next Gen will provide venture capital to all sectors of the pot

Barr said that on May 7 his company will host a conference at the
Vancouver Convention Centre to bring together people and businesses
interested in the financial side of legally grown marijuana. Barr is
bullish enough that he's booked three ballrooms for the event.

"Next Gen is one of the first Canadian public companies to enter this
multi-billion-dollar green rush whose objective is to invest in a
basket of companies in this sector," according to the Next Gen Metals
website, where visitors seethe name Next Gen and a marijuana leaf
logo, but not the word "Metals."

Difficult to measure

Lawrence Roulston, a mining industry expert who runs the website
Resource Opportunities, said he deals with a lot of junior mining
companies, which fail at a high rate. He admitted he knows very little
about the marijuana industry, but said it's difficult to measure
startups in the new industry to determine if they're viable companies.

Roulston said it's important to do due diligence on any company by
examining its business proposal and checking out the reputations and
success rates of the principals behind it before investing.

Company success could further be hampered by the ambiguous regulatory

Health Canada notes on its website that dried marijuana is not an
approved drug in Canada but that courts "required reasonable access to
a legal source of marijuana when authorized by a physician."

Gilhooley said there may be a few strong players that survive and
thrive in the end.  
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