Business

Pot stocks may go up in smoke

The high times won’t last long for Wall Street’s pot brokers.

The sudden US investor interest in marijuana-related stocks — some having soared as much as 1,700 percent in value in recent weeks — may be growing as recreational and medical use of pot is legalized and debated nationwide.

But stock pickers and regulators issue this sober warning — these mostly pink sheet and over-the-counter “pot” stocks, a total of about 35 listings, could go up in smoke. And some pot-stock promoters are scammers trying to go legit in a dodgy industry, critics say.

“Most of these stocks are not good investments, but they are great for trading,” said Alan Brochstein, a widely followed “pot” stock expert who estimates their total market cap today at $5.5 billion based on converting all securities, like convertible notes or preferred stock, in the capital structure.

“The demand is high and supply low, leaving ridiculous valuations,” Brochstein said.

Richard Roberts, a former Securities and Exchange commissioner, says these same stocks are the kind that attract regulators. “These are very low-priced securities which have had very big run-ups — explosions in prices,” he told The Post. “Ordinarily when that happens, regulators at the state and federal level become interested.”

Indeed, the Financial Industry Regulatory Authority warned investors late last year to be on the lookout for shady promoters of marijuana-related stocks who pump up the price and then dump them on unsuspecting investors. These investors can take a heavy financial beating. The financial-services watchdog also said investors should be careful of businessmen in the industry who had done jail time.

Most of these marijuana-related stocks — some connected to the medical profession — are hardly 18 months old. Many trade for under $1 a share.

They have names like Hemp (HEMP), Cannabis Science (CBIS) and Medical Marijuana (MJNA). And some have seen huge price surges, as Colorado became the first US state to legalize recreational pot. The biggest of them all, says Brochstein, is CannaVest (CANV), a company trading above $70 that sells consumer products with industrial-hemp-based compounds.

The price fluctuations in such stocks, though, is often extreme. “From a practical point of view, for people in the financial services industry — my son who works for a hedge fund being one of them — it is really a very volatile market,” said Ron Brogan, regional director in the New York area at the anti-drug group D.A.R.E. “The stock may have an initial spike, but ultimately it probably is a very dangerous investment.”

Brogan, a former agent at the Drug Enforcement Administration, is highly critical of former Seattle DEA agent Patrick Moen, who, in a well-publicized move recently, quit to go to work as managing director of compliance at Seattle-based marijuana investment firm Privateer Holdings. Moen defended his move, saying he wants to advance a reputable pot industry.

Brogan is no proponent of pot stocks. “I think they are doing a great disservice to this country and to the children of this country,” he said.

Former SEC Commissioner Roberts says these marijuana-related stocks are no different from many other low-priced stocks: Sometimes they attract unsavory types.

“The authorities are paid to make a decision on what’s legal or not, but I would treat [marijuana-related stocks] like any other low-priced stock,” he said.