The Canadian Securities Administrators (CSA) has a blunt warning for investors looking to drop money into medical marijuana stocks.
Many issuers announcing plans in recent months to grow and sell medical marijuana are either dormant or quite small, according to the CSA, and likely don’t have the resources to follow through with these enterprises.
“In many of these cases, just the announcement of intent to develop a medical marijuana business has resulted in an immediate rise in a company’s stock price,” the CSA said in a June 16 statement.
“The CSA is concerned investors may face financial harm by purchasing such shares at an inflated price before there is a viable business.”
The federal government introduced new regulations in April that allowed large-scale medical marijuana operations throughout Canada.
One West Coast company has invested in a 25,000-square-foot facility, while another attracted former B.C. premier Mike Harcourt to sit on its board.
But companies can’t operate a medical marijuana business without receiving a licence from Health Canada — a process that can be both lengthy and costly.
“There is no assurance that a company announcing its intent to enter the medical marijuana industry will be successful in obtaining a licence or in creating shareholder value,” the CSA said.
“If a company is discussing or publicizing its intention to enter the medical marijuana industry, investors should understand what resources it has committed to its plan.”
