It looks like the Securities and Exchange Commission (SEC) has its eye on the cannabis industry and specifically stock promotion schemes. Last month, the Commission announced charges against two cannabis companies and associated individuals for their involvement in “a fraudulent scheme to promote the securities.” The companies at issue are Elegance Brands Inc., Emerald Health Pharmaceuticals Inc., High Times Holding Corp., and Cloudastructure Inc. Elegance Brands produces a product called Gorilla Hemp, a CBD energy drink.
What is a stock promotion scheme?
Stock promotion schemes involve scenarios where public companies hire promoters or marketing firms to generate publicity for their stocks, and those promoters/marketers hire writers to publish articles boosting those stocks – while failing to publicly disclose that they’re receiving payments from the companies. Those writers will post seemingly unbiased, glowing articles or reviews about the companies when they’re really nothing more than paid advertisements.
Sometimes, the count of articles can get into the hundreds, which may even include false statements that the writers had not been compensated by the companies they’re writing about. In a 2017 press release, Stephanie Avakian, then-Acting Director of the SEC’s Division of Enforcement, stated:
“If a company pays someone to publish or publicize
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