Signs frame the check-in window at the Denver Relief recreational and medical store in Denver on Aug. 25, 2014. (Brennan Linsley, The Associated Press)

Legal or not, weed business still holds much promise, puzzlement

INVESTORS

Investing in the pot business seems like it should be as easy as printing money. The product’s millions of users are so dedicated that they’ve been willing to risk arrest to get it. To reach them, all businesses have to do is grow a weed and sell the flowers.

Pot investing is treacherous, though, even for professionals.

“There are a lot of large egos and puffery in this industry,” says Brendan Kennedy, a former Silicon Valley banker who helped found Privateer Holdings, a marijuana-focused private equity firm. “It takes a lot of time and energy to sort through the hyperbole and find the right, legitimate opportunities.”

Every new pot company thinks it has the best growing technique or marijuana strain, Kennedy says, but few have worked out a long-term business plan that coldly assesses the market and the risks. 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, because nearly all of them are so-called penny stocks, like PetroTech, 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.


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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.

Kennedy says the penny stock companies “are full of charlatans and hucksters,” who are “purely playing on the desire of Main Street investors to get into the industry.”

One of the companies, called GrowLife, makes urban gardening equipment and trades under the ticker symbol PHOT. An October report designed to look like it was issued by a Wall Street firm suggested the company’s stock was poised to rise nearly 300 percent. But that “research” was actually paid for by GrowLife — a detail found only in the report’s fine print.

GrowLife’s shares soared 900 percent, to 60 cents from 6 cents, between October and early April, when trading was halted by the SEC. In June the company revealed that the $37 million loss it reported for the first quarter was actually double that, $74 million. GrowLife shares have since fallen back to 7 cents.

GrowLife CEO Marco Hegyi says the report “was never intended to boost the stock” and that legalization efforts boosted shares of GrowLife and other marijuana companies. Hegyi, who became CEO in March, says the company is working to improve its financial reporting. “We’re more on top of our business,” he says.


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CONSUMERS

A decade ago, pot consumers risked jail time by buying pot of uncertain origin and quality in back-alley deals. Now, in many states, they can shop openly for a wide variety of strains with different levels of potency. Pot can be bought 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, making extraordinary health claims about pot to push their products.


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“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. London has no problem with legalization, but says many medical claims for marijuana “are false or exaggerated” and “should not be tolerated.”

The website Cannabis.org, started by GrowLife, carries the tagline “Cannabis is Medicine” and lists 17 major diseases that cannabis can treat, including Alzheimer’s, cancer, and diabetes.

Some of the chemicals in marijuana have been tested thoroughly and found to effectively treat some conditions, such as reducing nausea and stimulating appetite in patients undergoing chemotherapy. These or other chemicals in pot may someday be found to be effective in treating other diseases — or they could be found to be dangerous in ways not yet understood. Scientists simply don’t know yet.

A Colorado company called Dixie Elixirs sells pot in pill form called “scrips” — short for “prescription.” These pills allow users to manage both their ups and downs, despite the same amount of pot in each pill, with additives like ashwagandha root. “Awakening Scrips” are said to provide a “stimulating sensation,” while “Relaxing Scrips” are said to “reduce mental and physical stress and promote relaxation.”


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Joe Hodas, chief marketing officer at Dixie Elixirs, says the company is careful to not make specific medical claims about its products. “It’s the regulatory framework that forces businesses to sell (marijuana) as medicine because that’s the only way it’s legal (in most states),” he says.

In a marketing pitch for one pot-based product, called Foria, a woman identified as “Anna, 29” says: “Foria is potent medicine and the most healing way I have ever used cannabis.” It’s not clear that Anna 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.
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AP Writers Kristen Wyatt in Denver and Gene Johnson in Seattle contributed to this story. Jonathan Fahey can be reached at http://twitter.com/JonathanFahey