Lessons for Lithium Players in Medical Marijuana Scams

A couple of years ago there was an explosion of companies touting themselves in the Medical Marijuana space as investors stormed in, hopeful of getting rich by investing in Wacky Tabacky stocks.

Those doing the same now with Jr. Lithium miners would do well to learn the lessons taught by some of the scams that came out of the Pot Bubble.  Here is a linked article dealing with charges brought against promoters of a pump and dump scheme involving two companies from last year, PHOT and HEMP, both traded on the OTC market in the US.

SEC Settles Charges in 2014 Marijuana Stock Scam

Of course there are tons of other examples where MJ stocks soared and then tanked that didn't break any laws  As far as I'm aware there are not statutes against taking advantage of stupidity combined with greed.  And with carefully worded news and promotional stories it is possible to spur interest in a stock without running afoul of the law.

In the case of companies promoting themselves as Marijuana plays, news items and toutsheets could herald the liberalization of marijuana laws and talk about the fact that "mary jane" is projected to be a multi billion dollar industry.  It pays to have a firm handle on hyperbole, because at times like these hyperbole runs rampant. 

For those unfamiliar with the word hyperbole, I define it as meaningless words meant to sound meaningful.  Here's an example of how I see hyperbole being used now with Jr. Lithium miners.

• Dewey Cheatham & Howe Minerals is pleased to announce that we have just acquired a claim of over 500 acres in the same area as Existing Lithium Mining.  This claim has the same topographical and geological makeup as that of Existing Lithium Mining and we are excited to have made this acquisition with the aim of advancing our Lithium Mining Project.  CEO I. Cheatham stated: "We firmly believe that with demand for Lithium exploding that we are uniquely positioned to monetize our Lithium Project.  Prices for Lithium have more than doubled in just the past year.  And with Tesla and other EV companies ramping up production the global Lithium market is forecast to be approaching $2 trillion dollars by 2020".  

If you've been following Jr Lithium companies and reading their press releases that might sound just a little familiar.  And there's nothing wrong with it, Lithium spot prices have more than doubled recently, and the global market for Lithium is forecast to be nearly $2 trillion by 2020.  That doesn't mean that this fictional Jr Lithium miner will see even one tenth of one percentage point of it.  But the goal of PRs of this sort is to get potential investors to buy stock.  

What does the overall world Lithium Market have to do with a Jr Miner that doesn't even have a single permit in place?  And that's to say nothing of all the other steps, (environmental assessments, financing, evaluation of provable and probable resources, etc) that need to be taken, steps that take years to complete.

I am confident in predicting that of the dozens of Jr. Lithium miners now popping up, that only a small handful will ever make it to production. So here are some guidelines on what to possibly look for in my opinion.

1. Many of these companies are listed on Canada's Venture Exchange, which has a well earned reputation for being the wild west of the investment world, and a favored listing for poorly capitalized and barely surviving Jr Mining Companies.  Here's an article in Canada's National Post newspaper on over 900 alleged "Zombie Companies".  (LINKED ARTICLE)  Canada's main index is the TMX and is the senior exchange.  If you use yahoo finance a TMX listed stock has .TO after the symbol, Venture listed stocks end with .V
2. Check the share structure to see how many shares are already issued.  Many of these companies have been around for a long time and already have 50 or even 100+ million shares issued and little or zero revenue.
3. Check to see if there are any promotional outfits hyping them and read the disclaimers, Youtube is a good place to look as many Investor Relationship companies do videos now.
4. Read any PRs and company filings carefully taking particular note of forward looking language like "we expect, anticipate, forecast" etc.

I'm not listing any company names here but here are two linked articles which list a number of Jr. Miners.  The first is from a site called nanalyze that lists 19 Juniors, all with market caps of at least $5 milllion: 19 Lithium Junior Mining Stocks

The second is from a Seeking Alpha writer: The Junior Lithium Miners 

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This instablog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment advisor.