New Risks for Investors and Business Owners in Legal Marijuana Sector

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The so-called "legal" marijuana sector continues to grow, despite the fact that marijuana remains illegal at the federal level.

Marijuana-based securities are now available. As The Wall Street Journal noted in a June 7 article, "Marijuana-related securities have arrived in the form of over-the-counter or penny stocks and special funds for accredited or high-net-worth investors."

Just like all marijuana-related commerce, investing in these securities carries great risk, including the possibility of prosecution for the investor and forfeiture of the business' assets. Federal regulators are paying attention. WSJ points out that the SEC issued an investor alert in May 2014, and that the "SEC and the Financial Industry Regulatory Authority have cautioned investors about the risks of buying marijuana stocks, some of which they say are the subject of investor-fraud complaints or complaints that they are little more than pump-and-dump schemes. In its 2014 alert, the SEC cited trading halts on several marijuana-related companies due to suspicious trading activity and investor complaints about their investments."

On a related note, the House of Representatives recently passed a federal spending bill that would limit the U.S. Department of Justice's ability to enforce existing federal marijuana laws. While this measure, if ultimately adopted into law by the Senate and signed by the President, would remove some of the risks of federal criminal prosecution for this fiscal year, it does not legalize marijuana nor does it eliminate other risks to investors, suppliers, and business owners.

Given the divergence between federal and state marijuana laws, navigating this area can be tricky and dangerous.

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