Source: Nathan Vardi Forbes Staff, April 25 2014
Shares of GrowLife resumed trading on Friday for the first time in two weeks and promptly plunged, falling by 60% in morning trading, in another sign of the perils of investing in so-called pot stocks.
The Securities & Exchange Commission temporarily halted trading in shares of GrowLife, which trade under the symbol PHOT on the over-the-counter bulletin board, earlier this month “because of questions that have been raised about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in PHOT’s common stock.”
Sterling Scott, the CEO of GrowLife, tried to stop the collapse of his stock by issuing two press releases yesterday. In one release, Scott said the company has established a new shareholder hotline and email communication system to field shareholder questions over the next few days. “We understand that these are trying times for our valued investors,” Scott said. In another release, Scott issued an open letter to shareholders that said the SEC had informed the company that it was not the subject of an informal or formal investigation and that the SEC has not requested any documents from the company or its board of directors. Scott also said that SEC staff had suggested to the company that regulators halted the stock because of concerns that 3rd party holders of Growlife stock were set to engage in some form of manipulative promotional activity. “I can confirm that GrowLife was not involved in the planning of any potentially manipulative promotional activity nor does it have any knowledge of any planned 3rd party promotional activity of any kind or type, proper or improper,” Scott said.
GrowLife, which claims to be in the business of providing infrastructure and services to marijuana and hemp businesses, has been a big issuer of stock, conducing several offerings of notes that can convert into a lot of shares at prices that are severely discounted to the price the shares had been trading for in the public markets. It has been one of the most widely traded pot stocks, which are shares of companies that seek to capitalize on investor interest in businesses related to marijuana at a time when some states are permitting it for medical and even recreational use.
Regulators have warned investors about potential scams involving pot stocks, which mostly trade in the penny stock OTCBB market, and the SEC has temporarily halted some pot stocks. The SEC’s concern appears focused on the trading of pot stocks by third parties who may have been involved in financing deals. Most recently, the SEC temporarily suspended trading of Advanced Cannabis Solutions in March, citing questions “regarding whether certain undisclosed affiliates and shareholders of Advanced Cannabis common stock engaged in an unlawful public distribution of securities.” Shares of Advanced Cannabis plummeted when they resumed trading two weeks later and have dropped by more than 40% in April.
To be sure, pot stock investing is not for the faint of heart. Shares of CannaVest, another high-flying pot stock, changed hands for $201 at one point this year, but now trades for $20.50. Still, one man who helped launch the company, a Florida physiotherapist named Stuart Titus, pocketed $7 million in stock sales this year, SEC filings show.
Wall Street and even some investment funds have been searching for pot stock stories they can back, but so far this investment arena has largely been a retail affair. Morgan Stanley MS -1% became the first major investment bank to initiate coverage on a pot stock when it initiated coverage of GW Pharmaceuticals this week. Morgan Stanley slapped an aggressive price target on the stock, causing the shares to spike, and said “while legal complications and social stigma have limited scientific progress in this area of drug research, we believe a thoughtful, science-based approach, as exhibited at GW, is likely to drive sig. value over time.”
Article Source: http://www.forbes.com/sites/nathanvardi/2014/04/25/pot-stock-growlife-plunges-by-60-after-resuming-trading/?partner=yahootix