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Continued: Conflicting laws, shady penny stocks, wild health claims cloud market; pot for your privates?

  • Article by: JONATHAN FAHEY , Associated Press
  • Last update: September 4, 2014 - 4:30 PM

Pot investing is treacherous even for professionals.

"It takes a lot of time and energy to sort through the hyperbole and find the right, legitimate opportunities," says Brendan Kennedy, a former Silicon Valley banker who helped found Privateer Holdings, a marijuana-focused private equity firm.

Kennedy says few companies have worked out a long-term business plan that coldly assesses the market and the risks — and growing plants for profit isn't quite so simple.

"Ultimately it's a crop, it's a commodity, not very different from a lot of agricultural products that are out there," Kennedy says. "Would you invest in a winery? Or a strawberry grower?"

Investing in pot stocks is even scarier. Most are so-called penny stocks that trade outside of major exchanges. There are now a couple dozen of these companies, often with names that play on marijuana's scientific name, cannabis sativa, such as Advanced Cannabis Solutions or Cannabusiness Group. But many have tenuous ties to the marijuana industry, regulators say.

Canadian regulators issued a warning about marijuana-related stocks in June, following similar alerts from the U.S. Financial Industry Regulatory Authority last year and one from the SEC in May. Five times this year the SEC has suspended trading in shares of companies claiming to be in the marijuana business.


Instead of relying on possibly dangerous back-alley transactions, pot consumers can now shop openly for a wide variety of strains with different levels of potency, and they can buy pot in lotions, foods and drinks with precise doses.

But buyers still need to beware. Companies are using pot's new legitimacy to try to equate getting high with taking care of your body or curing any number of ailments.

"Because it's a drug that makes people feel good, marketers want to put medical claims on it," says Bill London, a professor of public health at California State University in Los Angeles and a health claim watchdog.

Some chemicals in marijuana have been shown to effectively reduce nausea and stimulate appetite in patients undergoing chemotherapy. Others may help control seizures and inflammation, or even treat some diseases. But others could be dangerous in ways that scientists and the public don't yet understand.

In a marketing pitch for one pot-based product, called Foria, a woman says: "Foria is potent medicine and the most healing way I have ever used cannabis." It's not clear that she had a medical problem, though. The product is a pot-based lubricant for women, designed to increase sexual pleasure by delivering a high through their private parts.


AP Writers Kristen Wyatt in Denver and Gene Johnson in Seattle contributed to this story.

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