Matt Krantz, USA TODAY 6:31 p.m. EST January 8, 2014
Moves to legalize marijuana use is getting a variety of penny stocks high.
The stocks have been heating up following Colorado’s move to be the first state to legalize the recreational use of marijuana.
But be careful: You could get burned. The stocks sell on lightly regulated marketplaces, namely the OTCPink, a market place more commonly known as the Pink Sheets, and the OTC Bulletin Board. These marketplaces are not full-fledged exchanges, meaning they lack many of the investor safeguards found at the New York Stock Exchange and Nasdaq.
The dangers of trading in penny stocks, though, haven’t seemed to slow some traders down. Shares of the stocks are up anywhere from 21% to 2,104.5% this year as speculators pile in on the idea these companies might be able to capitalize on the rise of pot legalization.
One big winner has been GreenGro Technologies, which makes a variety of equipment used to grow plants, including marijuana. Shares are up 2,104% this year, but Wednesday they plunged down $0.28 a share to $0.80 a share.
A stock connected with the marijuana trade that’s not a penny stock is Medbox, which closed down $20.80, or 28.15%,to $53.10 a share, on Wednesday. The company makes dispensing machines that can be unlocked by consumers using biometrics, including fingerprints.
While the short-term gains in the pot-related stocks might be alluring, investors should be advised of the massive risks that make them inappropriate for most investors. Most of these companies are not required to provide updated or audited financial statements and are highly volatile. Additionally, the future of marijuana legalization is in flux and it’s unclear how large of a market these companies might have.