SEC Stock Promotion Scheme Charges Against the Cannabis Industry

In October, the United States Securities and Exchange Commission (SEC) announced that it would be charging two (2) cannabis companies, Emerald Health and HighTimes, and six (6) associated individuals who worked with the companies, for their involvement in “stock promotion schemes.”

 

Stock promotion schemes are “fraudulent schemes to promote the securities of issuers that were conducting (or purporting to conduct) offerings pursuant to Regulation A” of the Securities Act.  These violations arise when a company hires paid promoters/marketers/ influencers, both directly or indirectly through a marketing firm, to generate publicity surrounding securities, the paid individual(s) must disclose that they are receiving compensation for their promotions. If not, the advertisements appear to be unbiased, when in fact, the individual is being paid by the company to promote it.

 

The SEC complaint can be found here. The complaint alleges that after these fraudulent schemes to promote securities,  investors purchased approximately “$80 million in securities offered by these companies.”

 

At this time, it appears that most of the parties have settled with the SEC and agreed to pay monetary penalties. 

 

While the SEC has pursued actions stock promotion schemes before, the focus on the cannabis industry appears to be new.

 

OFW Law will continue to monitor for future developments. Please contact us if you have questions, comments, or concerns.

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