India Markets open in 4 hrs 16 mins

Pot stock scams are on the rise, Alberta watchdog warns

(GETTY)

Investment scams involving cannabis are on the rise as fraudsters exploit hype around new products like edibles and vapes hitting the market in Canada, according to Alberta’s securities watchdog. 

For a second year in a row, the Alberta Securities Commission (ASC) highlighted cannabis among the investment categories being exploited by scammers. Other themes cited by the regulator include crypto currency and foreign exchange. 

“Cannabis is one of the industries most commonly used by scam runners,” ASC director of communications and investor education, Alison Trollope, told Yahoo Finance Canada on Thursday. “There have been increasing incidents.”

The ASC did not release details regarding the extent of the increase, past or current investigations, and the number of investors impacted. Trollope said most scams originate online, and many ask investors to send money overseas, where the funds are virtually impossible to recover.

“Essentially all of these scams will have promises of high rates of return with low or no risk. They will promise you the sky and also indicate that there is some kind of time factor involved, like ‘You must get in now,’” Trollope said. 

Old scams are often rebranded with the latest high-flying tends like cannabis, crypto, and other flashy investment themes that appeal to retail investors. Trollope said the ASC first noticed cannabis-based scams around the time of recreational legalization in the fall of 2018. 

“It had that first wave. I think what we are seeing is now a second wave,” she said. “Cannabis is now a bit more in the headlines. So it sounds like something new and interesting to the consumer.”

Those who have been burned are often reluctant to come forward. The ASC estimates only one-in-10 victims of fraud disclose the situation to regulators, denying them critical information to investigate perpetrators and protect the public. 

“A lot of times people are embarrassed. Or they think, ‘I only lost a small amount of money.’ Whatever that small amount of money is to them, whether it's $500 or $5,000, they think, 'Well, lesson learned,’” Trollope said. 

“No one is immune to investment scams. We've had people who were very sophisticated investors that still fell victim.”

Trollope said parties offering securities generally have to be registered with provincial securities regulators in Canada, and it’s important that investors check for that registration before buying.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

Download the Yahoo Finance app, available for Apple and Android.