Marijuana companies now offering penny stocks

The medical marijuana industry believes offering penny stocks to investors is the path to legitimacy and growth.

Investment analysts call that a half-baked idea.

A handful of medical marijuana companies sell stock on the Pink Sheets, the unofficial name for stocks that sell over the counter, with prices usually below $2.

The stocks are not listed or traded on an organized exchange, and aren’t subject to Sarbanes-Oxley regulations, meaning financial information is scarce.

There are no financial audits, no profit statements, and little information about how the businesses are run.

“The penny stocks are no place to invest,” said financial planner Alan Roth of Springs-based Wealth Logic. “No matter what the company — and I’m not making a judgment call on medical marijuana — they’re just not a good long-term investment.”

The Pink Sheet stocks come from companies that are smaller, and don’t meet the listing requirements for the New York Stock Exchange or the Nasdaq.

Roth calls the pink sheets the “scuzzy” side of the stock market — the place for less-than-reputable companies.

“You just don’t know that much about what you’re investing in,” he said. “These medical marijuana stocks, they’re exchanging millions of shares every day — they can be volatile.”

Even though the investment amount is small — most stocks sell for pennies or even fractions of pennies — Roth said wise investors steer clear of them.

“There’s no guarantee that you’ll see any kind of return on the investment,” he said. “It’s a dangerous, scummy place to do any level of investing.”

Even the groups that track medical marijuana stocks — like the web site medicalmarjianastocks.com — say investors should be aware of the risks.

“This is the Wild West of investing,” the site warns. “It’s highly speculative. These are development level companies and may have no revenue at all — ever. Do not play in this market with money you cannot afford to lose.”

One of the publicly traded companies is expanding in Colorado Springs. Altitude Organics is buying out its second location, and is one of seven medical marijuana companies currently trading over-the-counter shares.

The move, according to CEO Brian Cook, is the first step in expanding the Altitude Organics brand throughout the United States. Selling shares gives him the capital to expand and create new business opportunities, according to press releases from his company.

Altitude Organics has dispensaries in Colorado, Arizona and California. The expansion to a second location at 822 W. Colorado Ave. marks its second business in the Springs.

The company’s own information shows that its stock is volatile — reacting to political news and other information by exchanging more than 23 million shares in a single day.

Altitude Organics web site doesn’t have any financial information on it — even as it touts new business opportunities. For instance, the company moved to Arizona this year, launching a business management branch to assist new entrepreneurs in opening dispensaries there. The first dispensaries opened this June in Arizona.

But don’t look for profit-and-loss statements, they aren’t required to post them. Of the roughly 18 companies listed, only Converted Organics, based in Boston, listed any sort of financial information. Revenue for the company was $8.8 million in 2010, up from $2.2 million the year before. But it’s losses grew too. It reported net losses of $48 million in 2010, up from $22 million in 2009. The net loss per share equaled 65 cents.

Denver’s Fusion Pharm is also on the Pink Sheets. It’s the only other company in Colorado that’s being tracked by MedicalMarijuanastocks.com.

Not all the companies are dispensaries. Some work in side businesses — hydroponics, grow lights. At least one provides an electronic payment method similar to a prepaid bank card for owners and patients.

Fusion Pharm is one of those companies. It doesn’t grow or sell medical marijuana, but provides “funding,, office/warehouse space, sales and marketing assistance and ancillary services to medical cannabis companies through joint venture agreements, strategic partnerships and/or equity ownership in medical cannabis companies when possible.”

While Roth recommends avoiding penny stocks, the American Medical Marijuana Association believes that investing in stocks can push legalization forward in the United States.

“People in the green (environmental) movement show their support for those who are leading the environmental revolution by supporting green companies through both their purchases, and their investments,” the website said. “What if we began supporting those products and companies that are the leaders in medical marijuana research, the leaders in pushing for legalization?”

Roth says that investors that want to support a cause should be prepared — in the volatile world of over-the-counter stock sales, profits can be a long time coming.

“You could lose all the money, never see a penny,” he said. “These types of companies come and go. It’s not just medical marijuana companies — these over-the-counter stocks are where companies go to die. It’s simply not a good investment.”