Beware Cannabis Companies Aggressively Soliciting Investment

We learned this week that HighTimes Holdings, the parent company of High Times, has been trying to find parties with extensive email lists to solicit for its Reg A+ offering (still pending at the SEC). The company seeks to offer potential investors a 10% discount off of the $11 offering price for the deal:

After reading the prospectus, I was already skeptical about the investment merit of the Hightimes Holdings offering, as I wrote elsewhere (Investing in High Times: Puff or Pass?), but this aggressive solicitation proposal makes me even more cautious. I am quite surprised to see the company willing to sell shares below the stated offering price.

Sadly, High Times would not be the first company to use aggressive solicitation techniques, and we have written about many of them. One that stands out was CBD Incorporated, which issued a bold press release in 2016 about its big plans to turn $1.2 million in outside shareholder money into $500 million annual sales within five years. The company, which still hasn’t filed anything with the SEC 19 months later, has scaled down its outlook according to a presentation from July 2017 on their website and is still seeking that $1.2 million.

Recently, CannaSOS, a community that allows members to “mingle and build connections, find and share marijuana-related information, search and review cannabis strains, and connect to 420-related businesses nearby and worldwide” launched an Initial Coin Offering (ICO) for its “PerksCoin”. Jon Christian exposed the company in “Scammy startups want to pay writers in worthless cryptocurrency“, where he detailed a pay-to-play scheme:

This weekend, an editor at The Outline got an email from Oleg Cheine, the CEO of CannaSOS, a “comprehensive social network and sophisticated advertising platform designed primarily for the cannabis industry,” offering to pay for articles in a proprietary cryptocurrency called PerksCoin or PCT. “For each original article posted on our News feed I will provide you with 500 PCT (nominal price $0.80/token),” Cheine wrote. “Each article needs to be at least 700 words and obviously needs to be interesting/engaging to our readers. For every article you write, you will send me a link via email and I will allocate the PCT to your account.”

ICOs are especially ripe for fraud. Irwin Stein detailed some concerns about Paragon Coin. One of the investors in that ICO is now suing the company and its founders for alleged securities laws violations. Paragon Coin used Facebook to aggressively market its ICO.

Another aggressive promoter of its seemingly overvalued stock was Med-X, which we wrote about twice before its Reg A+ offering was suspended by the SEC. The company was able to restart its campaign and continues to use its media property, Marijuana Times, to promote its own stock without any disclosure to its readers. It recently wrote about its parent merging with a related party, saying that the merger will “make cannabis industry leader Med-X even stronger“.  At least it is no longer trying to sell stock with banner ads on the site, as it was previously.

Cashinbis, a former active publisher that lost its momentum when co-founder Carlo Desierto left in 2016,  has ties to publicly-traded penny stock Medical Marijuana, Inc. (OTC: MJNA) and its long-time publicist, Andrew Hard of CMW Media and regularly writes about MJNA and its subsidiaries and other clients of CMW Media, with no disclosure of past or current ties. Most recently, it wrote about GrowLife (OTC: PHOT), one of Hard’s clients, being nominated for a “Best of Cannabis” award in several categories:

GrowLife is a former high-flying publicly-traded that was suspended by the SEC in 2014 and has struggled financially since then. As of its most recently reported quarterly financials, it generated sales of $661,444 for the quarter ending 9/30/17 with a loss of $756,199. Its balance sheet showed total assets of $860,353 but liabilities of over $3.5 million. It does not appear to be a “nationally recognized cultivation brand positioned to dominate the indoor cultivation market”, as Cashinbis suggests.

A cursory look at the Cashinbis complete list of nominations reveals several other companies tied to Hard, including Kannalife Sciences, Axim Biotech (OTC: AXIM), Hemp, Inc. (OTC: HEMP) and Kannaway. CMW Media, not surprisingly, was nominated for “best P.R. agency”.

It’s not just companies themselves who do the hyping. We wrote about the aggressive marketing tactics of financial newsletter writer Agora Financial last April, and the company ramped it up again early in the year, offering those who subscribed to its service their money back if at least five picks didn’t return at least 1000%.

Screenshot from Money Map Press (Agora Financial)

The way this works is that first they alert their subscribers to the names, then they send out a blast email to non-subscribers and, finally, publish a piece like this, “The California Pot Stock Explosion Could Be the Biggest Moneymaking Opportunity Ever.”

The company appeals to greed, with promises of unrealistic returns:

Screenshot from Money Map Press solicitation
Screen shot from Agora Financial’s Money Map Press solicitation

The bottom-line: Fake news, hype and aggressive email campaigns are not limited to the cannabis industry, but ours is especially prone to these aggressive tactics.  Potential investors need to be very careful about media, banner ads and email solicitations. Make sure that the source of information is trustworthy! The louder the company, the more likely it is to be an enrichment scheme rather than a real business. In the case of High Times, which is a real business though burdened by substantial debt, the solicitation arrangement that the company is seeking perhaps reveals a lack of confidence in its ability to raise money.

See something questionable about a cannabis company? Let us know, and we we will check it out.

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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