In a recent public comment, the Colorado Division of Securities, led by Commissioner Gerry Rome, recently issued an investor advisory (“Advisory“) to warn would-be cannabis-industry investors about “risky marijuana-related investments.”
The press release for the October warning describes the context of the Division’s announcement:
Investments in marijuana business ventures are becoming more prevalent and are receiving increased media coverage. Fraudsters may attempt to use this attention to convince investors to hand over money for risky or outright fraudulent marijuana ventures.
It further describes particular tactics used by scammers. One example provides:
Scammers may make promises about insider information concerning a new law or regulation that will legalize marijuana in a jurisdiction where it is currently prohibited. Investors may be encouraged to “get in now,” buying low and making huge profits when a new law or regulation is enacted. In reality, there may not be any new laws or regulations pending, allowing the scammers to take the money and run.
In an area where new marijuana-related legislation is changing quickly, it’s no surprise that the Colorado Division of Securities is on the lookout for promoters trying to take advantage of ill-informed consumers–this provides a word of caution to cannabis companies seeking outside investment: the securities laws do apply to you, and consequences of non-compliance could be significant.
More broadly speaking, the public statement is a reminder to businesses that the Division is paying close attention to this area of activity. Businesses seeking advice on raising money in the cannabis space should seek experienced legal counsel to assist them in navigating these waters.
- Colorado Division of Securities Statement on Investing in Marijuana Businesses, October 2018 (link)
Sanctions issued against Aurora investment banker who admitted to securities fraud in relation to marijuana investment. Link here.
With his next employer, Foundations Investment Advisors, LLC, where he worked as an investment adviser representative, Stivers began soliciting individuals to invest in another of his companies, AIM High Holdings. These investments were not registered, nor exempt from registration with the Division, and Stivers, though no longer licensed to sell securities, earned commissions for these sales, further violating provisions of the Colorado Securities Act. Filings required by the Division in regard to the Aim High Holdings securities and his own involvement with the company were either neglected or, when filed, contained inaccurate information. Within a year, Stivers recruited nine Colorado investors to hand over $570,000, but in doing so he failed to disclose a number of materials facts and made misrepresentations as to the offer and sale of the AIM High Holdings securities.From Division of Securities Press Release