Regulator warns of potential fraud in marijuana stocks

NEW YORK — Con artists are taking advantage of the legalization of medical marijuana to lure investors into buying questionable stock in weed-related companies, regulators said Tuesday. Scammers may be promoting shares and then selling them to gullible investors in a ‘‘pump-and-dump’’ scheme, the Financial Industry Regulatory Authority said. Such companies tout their growth potential as more states allow pot use.

‘‘We’ve seen a rise over the last couple of months in marijuana-related potential stock scams,’’ said Gerri Walsh, FINRA’s senior vice president for investor education.

Walsh said she could not say which companies attracted suspicion because FINRA has a policy of not discussing potential cases. Investors should compare the contents of press releases and promotional e-mails to the companies’ financial statements, she said.


Washington and Colorado legalized the drug for recreational use. Eighteen states and Washington, D.C., allow medical use; 11 permit sales through dispensaries.

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Investors should be wary of companies whose executives have been jailed, according to FINRA, which gives the example of an unnamed chief executive who spent nine years in prison. Bruce Perlowin, CEO of Hemp Inc., said he thinks the regulator is talking about him and that it’s ‘‘absurd’’ to criticize him — ‘‘It means I know marijuana, I know logistics.” The stock fell 6.9 percent Tuesday.

Medbox Inc., which sells kiosks to dispense marijuana, fell 9.1 percent to $33.80. After the stock hit $215 in November, the company warned the price may not be justified. CEO Bruce Bedrick applauds FINRA’s warning. ‘‘There are companies and individuals that prey on investors looking to enter this fast-growing market,’’ he said. ‘‘We want these fly-by-night operations out of our industry.”