Source:  By Ian Austin and Susan lazaruk, The Province April 22, 2014

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 industry.

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.”

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