The Wolves of Weed Street. Weed stock scams for dummies.

March 30, 2014 in ACTION ALERTS, Ethics and Morality, Fuck You, Weed Business, Weed Politics

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A sucker is born every minute and in the newly emerging and quasi-legal cannabis market I am pretty sure that number is much higher (pun intended). I just finished watching Martin Scorsese’s Wolf of Wall Street last night. Beyond the shock value of a lot of it was a sad and true story about the way “Wolfie” Jordan Belfort was able to fleece millions of dollars from hard working people by selling shitty pink sheet stocks that have little to no real company value behind them.

I was starkly reminded that ALL of the cannabis stocks we see floating around right now are traded on these same pink sheets to avoid regulation and oversight. The stock market is hard to pin down with its constantly moving targets, and most of the fraudsters who are putting on these scams to profit off of people’s love for weed are about as shifty and unethical as they come. They are the lowest of low; and it is their goal to separate you, the stupid small time hard-working investor, from your hard earned money selling you shit stocks from companies with little to show for their promises of fame and fortune.

The Wolf of Wall Street did a great job of showing how the pink sheet traders are indeed the lowest scum of the investment world, comparing them to the dirtiest and most disgusting low budget prostitutes:

“The three of us exchanged glances but said nothing. After all, what was there to say? The truth was that hookers did take credit cards—or at least ours did! In fact, hookers were so much a part of the Stratton subculture that we classified them like publicly traded stocks: Blue Chips were considered the top-of-the-line hooker, zee crème de la crème. They were usually struggling young models or exceptionally beautiful college girls in desperate need of tuition or designer clothing, and for a few thousand dollars they would do almost anything imaginable, either to you or to each other. Next came the NASDAQs, who were one step down from the Blue Chips. They were priced between three and five hundred dollars and made you wear a condom unless you gave them a hefty tip, which I always did. Then came the Pink Sheet hookers, who were the lowest form of all, usually a streetwalker or the sort of low-class hooker who showed up in response to a desperate late-night phone call to a number in Screw magazine or the yellow pages. They usually cost a hundred dollars or less, and if you didn’t wear a condom, you’d get a penicillin shot the next day and then pray that your dick didn’t fall off.

― Jordan Belfort, The Wolf Of Wall Street

I have been trying to warn people about the pink sheet fraud that is happening in the world of cannabis stocks for a long time. I called this shit in 2009, when the King of Fraud himself, Bruce Perlowin, began pushing Medical Marijuana Inc. and trying to recruit people from the industry to manifest their scam. The problem is that stock fraud is difficult to nail down, and the way these companies evolve are through smoke and mirrors tactics that play on the affinity of the investor, while shifting the liability of the scam among veiled stakeholders and other fake shell companies to enhance the books and create the illusion of short term success.

In simple terms, most of the marijuana stock companies are participating in plain and simple affinity fraud. Here is a little information from the SEC on what affinity fraud is:

What is an Affinity Fraud?

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups (or cannabis lovers). The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group (or activists for a cause). They often enlist respected community leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile (a lot of this going around). Many times, those leaders become unwitting victims of the fraudster’s ruse (or willing participants).

These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community leaders to convince others to join the investment. (Or in a movement where people are scared to go to authorities in fear of prosecution for weed)

Many affinity scams involve “Ponzi” or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful (A LOT OF THIS HAPPENING). This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone. (Any minute now)

But do not take my word for it. This week the well-respected Forbes Magazine did a piece entitled, Inside the Pot Stock Bubble where they examine the real time fraud happening with stocks in the cannabis sector. It is an eerie resemblance to the scams portrayed in the Wolf of Wall Street movie. These guys are driving up the value of a bullshit stock through false hope and media propaganda to sucker you, and whoever else is interested, out of their hard-earned cash. They are not preying on rich folks, but those who work hard and are hoping to invest their savings in “the next big thing.” It is shameful and disgusting. The cannabis industry should be outraged that these charlatans are working to fleece the public through using our good name and reputation.

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Here are some highlights from the Forbes piece:

…Who needs the heavily regulated casino industry when there’s far more cash on the table in the penny stock market, with nary a protection for investors, save a warning from the Financial Industry Regulatory Authority last August to be on guard for “con artists behind marijuana stock scams”?

…The perfect window on a huge, emerging red flag for mom-and-pop investors looking for a way to cash in on the legalization of marijuana. A multibillion-dollar industry run for decades by criminals and now traded on the vehicle of choice for financially savvy swindlers and hucksters! What could possibly go wrong?

Perhaps the most incredible part of the pot stock boom: Even though the Obama Administration says it will not enforce the Controlled Substances Act in states with a robust regulatory regime, marijuana remains illegal under federal law. “You can’t have an industry where they say, ‘We can put you in jail for the rest of your life, but we probably won’t today,’?” says Sam Kamin, a University of Denver law professor. “Who would invest in that? Who would put their money in that in terms of raising capital?”

In Colorado, for example, recreational and medical marijuana businesses have to grow and sell their product in the state. That is why Medical Marijuana carefully structured its joint venture with Dixie so that it does not actually do anything connected with marijuana. It is also a big reason that hemp–a variety of pot plants that has only trace amounts of THC, marijuana’s psychoactive ingredient–has become the buzzword with the pot stock crowd.

You can read more about the details of who these fraudsters are specifically in the Forbes article. There has also been some good pieces done over at Seeking Alpha that have tried to follow these scams and expose their fraudulent activities. There are also many articles working to “pump” these scams too on there, but an article entitled “Medical Marijuana, Inc.: Definitely a Dope Opera”  and others are good insightful reporting on what is often a complex and woven web of bullshit that is the stock game.

The reality is that there is very little legitimate stock investment opportunity in the cannabis sector right now. Why? Because of it being federally illegal.

Real investment folks are not at the table yet. What you see now are a lot of ex-mortgage fraudsters and tech bubble vultures circling looking for easy prey. They are taking the “sizzle” of the surging popularity of marijuana and are using that to sucker good folks out of their good money based on bullshit lies and false promises.

So how does it work?

I am glad you asked. The racket these companies are engaged in is most commonly called the “Pump and Dump.” Below is an explanation of what that is more clearly in context of the wolf of Wall Street:

PUMP AND DUMP

A pump and dump scheme consists of artificially inflating or ‘pumping’ the price of a stock to benefit those that own it. Once the price has been pumped up, owners quickly sell off the stock or ‘dump’ it at a huge profit causing the price to plummet. Jordan Belfort would often buy large amounts of worthless stock and then, using his army of stockbrokers at Stratton Oakmont, spread rumors and positive statements about the company. This caused the price of the stock to spike exponentially. Once the stock reached record highs, he and his associates would sell it off, causing the price to reach record lows.

So the most obvious example of “The Pump” is the Martha Stewart of Marijuana herself, Cheryl Shuman. I began writing about her fraud in a piece entitled “Cheryl Shuman is Full of Shit” last year. Her “pump” of a company called Rapid Fire Marketing (RFMK) and their crappy product the Cannacig put her on my radar. What she did was create this false persona through the “Martha Stewart” rip-off deal. The woman cannot cook, so where Martha became relevant is beyond me. She sells herself as some Beverly Hills socialite, when she really does not live in Beverly Hills at all.

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To pump her company Rapid Fire she needed a hook to attract television producers. She latched on to a hot button topic, being kids who use cannabis, and conned the parents of a girl named Mykayla who is battling cancer, to take their story public with her on the Ricki Lake show. The company promised the family a generous donation based on sales from the show if they helped pump their company on their website and social media channels. The family trusted this woman and her pump scam, only to find out they were used and tossed away after the company made a bunch of money by pumping their stock based on the story of their family’s struggle. A detailed account of this experience can be found at the father’s blog entitled “Sly Generosity: Cheryl Shuman Meets Brave Mykayla.”

RFMK sent the family less than $50 for their efforts, dumped a bunch of overvalued stock, and wandered off into the night with their riches.

Shuman also began to pump for Medical Marijuana, Inc. (MJNA) last year, right before she was exposed for her bullshit. She was selling “Hempmeds Px” products at every stop. She used her experience with the Ohio Rights Group to pump her bullshit snake oil on her propaganda “media tour.” She even convinced some of the Board to invest in the company and had their logos plastered all over the campaign website. In September she went on social media to claim she suffered a “mini-stroke” and was miraculously cured by using Hempmeds Px CBD products LESS THAN A WEEK LATER. Amazing, right?

After pressure from people who would no longer tolerate Shuman’s shameless pump scheme, MJNA released Shuman from being their brand manager. Now the company has put together and elaborate multi-level marketing pyramid scheme called Kannaway to continue the pump. Shuman is off pumping other bullshit, and talking about taking her own company public for the pump and dump ride. Should be exciting.

Other forms of “the pump” are overzealous press releases pushed out claiming untrue and manipulated facts to increase the value of the stock. You see this happen all of the time. It was more prevalent, nearly daily, before it was found out the SEC was investigating MJNA.

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It is unclear when the Wolf of Wall Street scenario will fully play out. Remember, in the movie based on real life, Jordan Belfort was allowed to scam people for years while the FBI investigated him before any charges were filed. Who knows if, and when, anyone will get around to investigating and cracking down on these crazy scams. It is exhausting to have these folks stealing money based on bullshit promises about weed because they know people love weed and will want to invest.

The penny stock scams going around now are disgusting and incredibly immoral. Or maybe scumbags like Jordan Belfort, the Wolf of Wall Street, were right…

 See, money doesn’t just buy a better life, better food, better cars, better pussy. It also makes you a better person. You can give generously to the church or a political party of your choice.

It is up to you if you want to give your hard earned cash to the Jordan Belfort’s of cannabis or not. We can have the “I told you so” conversation later.