Colorado’s New Year’s resolution to fully legalize pot within its rectangular borders is freaking out the squares on Wall Street. According to a recent Bloomberg report, pot-related penny stock values are going through the roof.
Bruce Perlowin, the chief executive officer of Hemp Inc. (HEMP) who has seen his stock soar 205 percent to 8 cents in the last three days, says investors are suddenly bidding up marijuana companies because they want to find "the next Microsoft." Robert Frichtel, his Advanced Cannabis Solutions Inc. up 144 percent after posting $455 in sales last quarter, said "euphoria" is driving gains that in some cases top 1,700 percent.
"The demand for marijuana is insatiable," said Perlowin, a once-jailed smuggler who filed last month to sell 12 million shares of the Las Vegas-based company even as its market value holds at 99.97 percent below the world’s biggest software maker. "You have a feeding frenzy for the birth of a new industry."
The report cites some pretty striking examples of recent spikes in market value. There’s GreenGro Technologies Inc., a medical dispensary management services company, for one, which saw a 1,714% increase in stock price in 2014. Then there’s Tranzbyte, a Colorado-based pot seller, which made the jump from less than a third of a cent to a full penny. Other penny stocks experiencing the phenomenon include Growlife Inc., Medical Marijuana Inc., AVT Inc., Cannabis Science Inc., and Advanced Cannabis Solutions Inc.
But hot penny stocks can be dangerous (as the Wolf of Wall Street can attest), and people could potentially lose a lot of money, some investment managers warn. It also remains unclear as to whether stock brokers are simply recommending any old marijuana company after taking a bong rip and high-fiving their office neighbors. In August, the Financial Industry Regulatory Authority warned investors that some pot-brokers might just be out for "pump-and-dump" scams, à la the real-life Wolf of Wall Street, Jordan Belfort.
The bloom might already be fading on the bud. When I took a look at how the aforementioned stocks were faring today, most were down, anywhere from 18% to more than 50%. Some, though, were maintaining their highs.