A few weeks ago in Baltimore, a resident took to the Internet in an effort to stand up against some community members who disagreed with her lawn decor.

Julie Baker, whose yard was decorated with a handful of rainbow-colored objects, received this letter from a neighbor:

Baker immediately started a GoFundMe page. Her intention was to raise money for even more “relentlessly gay” yard decor. She really wanted to “stick it” to her neighbor, and apparently quite a few other people did, too.

Donations flooded in from members of the LGBT community and its supporters.

Her fund raised over $43,000 in just two weeks.

As it turns out, the entire scenario was a hoax.

Baker wrote the note herself and was using the struggles of the LGBT community as a platform for her fake scheme to get money in her pocket.

Last week in the UK, a mother and daughter were the victims of an extended con scheme. The two were convinced they would be imprisoned for 20 years for a crime they did not commit.

They had a ton of their money stolen and, believing they had no other option, ended their own lives with a suicide pact.

The Internet of Confidence Schemes

Scam artists are everywhere. We’re seeing a bunch of them throughout the marijuana industry.

Legal cannabis is a new and unexplored market, and therefore it’s fairly easy to exploit people’s excitement.

Last year alone, almost $24 billion was lost in penny stock “pump and dump” schemes.

I don’t want everyone to read that and immediately shy away from penny stocks. Those markets are important for honest, innovative companies looking to generate revenue and grow.

Instead, we as investors should maintain level heads and practice some degree of scrutiny before throwing our money away because we were deceived.

Here are some of the more well-known culprits…

MediJane Holdings Inc. (OTC: MJMD)

First of all, this David Katz character…

It might be a case of “uncanny valley,” but that guy looks like a cyborg sent to steal all our money.

David’s “publication” was paid $400,000 per week to intentionally pump up MediJane’s stock to his willing subscribers.

The advertising budget for MediJane was funded by the largest shareholders of the company, who intended to almost immediately dump their shares.

MediJane also neglected to reveal some sketchy connections between their CEO, other board members, and third-party companies involved in money laundering and unregistered stock sales.

Looking back, schemes like this one seem so obvious that it’s hard to believe they actually work.

However, like I said, it’s easy to get caught up in the excitement. The website looks somewhat professionally done, and it’s hard to ignore promises of almost 1,000% gains, so I can see how investors can get lost in the smoke and mirrors.

Unfortunately for those investors, David Katz and his partner in crime, Tobin Smith, have an average return record of negative 95%.

Anyone who follows pot stocks probably knows about MedBox (OTC: MDBX).

The company manufactures and distributes lockboxes and weed “vending machines” to marijuana dispensaries.

Between 2012 and 2014, MDBX grew to just over a $2 billion valuation.

Except now, its valuation is just a little over $9 million. The company’s CEO, a convicted scam artist and felon, is under investigation by the SEC in regards to his “pump and dump” stock scheme.

In a case between the SEC and MedBox’s CEO and his fellow founders, it’s revealed that the group coordinated to engage in manipulative stock techniques “in order to artificially inflate the stock prices of numerous 6 thinly-traded microcap companies, including ISM International, Inc. (“ISML”), Allied Products, 7 Corp. (“ADPC”), Aden Solutions, Inc. (“ADSU”); GrowLife, Inc. (“PHOT”); Hemp, Inc. 8 (“HEMP”); and Riverdale Oil and Gas Corporation (“RVDO”).”

Without providing concrete financials, MedBox announced an expected $20 million in projected revenue. Next came the inflated shareholder interest.

MedBox shared “testimonials” from clients and shareholders, but there is widespread doubt about their authenticity.

By aggressively promoting these small stocks through their own “publications” owned by their separate LLCs, Vincent Mehdizadeh and his cronies made millions.

Thankfully, Citron Research, a seasoned firm with experience in corporate fraud, was able to uncover and publicize this shady practice:

“I think the company will go bankrupt before any resolution, and I don’t think they have any directors and officers insurance. These people have no business running a public company; they are in way above their head.”

—Andrew Left, Citron Research

The scam that is MedBox has cost shareholders millions of dollars. The company has since (allegedly) restructured its business model and is now working on the construction of a cultivation site in Colorado. According to a recent press release, “work is now underway.”

I would take everything coming from this company with several grains of salt.

Totally Hemp Crazy Inc. (OTC: THCZ) didn’t always go by this name.

There’s a complicated corporate history here.

It begins in 2000, when Stealth Industries was founded.

In 2009, it became Precious Metals Exchange (PRMX).

Two years later, Legends Food Corporation (LJWY).

Just six months later, LJWY morphed into Republic of Texas Brands (RTXB).

And finally, in 2013, we arrive at Totally Hemp Crazy, Inc.

It’s not necessarily a bad thing for a business to change its name. However, it’s definitely not reassuring when an alleged entrepreneur repeatedly fails across several markets. In this case, founders jumped from custom material manufacturing to precious metals to Texas BBQ to restaurants to cannabis.

This one is pretty entertaining to me because THCZ founder Jerry Grisaffi didn’t just collude with other people — he also colluded with himself via his fabricated alter ego, “BJ Grisaffi.”

It’s the same old story here. Grisaffi announces his product, an “exciting hemp-based energy drink,” and that THCZ has exclusive distribution rights in the state of Texas.

Here’s the problem…

Financials released earlier this year aren’t as promising as Grisaffi touted to his shareholders:

• Cash: $8,000
• Current Assets: $18,000
• Revenues: Less than $1,000
• Income From Operations: $279.39 (numbers not in thousands — that’s two hundred seventy nine dollars and thirty nine cents)
• Net Loss: $129,000

I couldn’t even pay my rent with income like that.

Grisaffi’s personal history of failed entrepreneurship aside, there’s no chance that THCZ can support operations with financials like those.

Oh wait…

There’s another name change in the works already.

Introducing Rocky Mountain High Brands, Inc.

Grisaffi and the people over at Rocky Mountain might not be convicted criminals, but sometimes bad investments are just the result of blatant ineptitude.

The SEC slapped THCZ with a caveat emptor (“let the buyer beware”), which should be a clear cause for concern.

The SEC has stepped up its game as far as issuing investor alerts and trading suspensions, but it can’t be expected to catch every scam before it comes to fruition.

There are tons of others, and I’m sure they won’t stop anytime soon — especially with marijuana legalization heating up for the 2016 elections.

The good news is that there are distinct red flags that, if you take the time to look, will alert you to an obvious “pump and dump” scheme.

Even if a stock isn’t grounded in fraudulent practices (maybe its operators are completely incompetent), these are also decent ways to tell whether or not a company is a worthwhile investment.

Do Your Homework and Ask the Right Questions:

• Is the CEO a convicted felon (or a cyborg)? Doing a quick search of a company’s CEO can reveal whether that person is legitimate and can also reveal any unsavory connections he or she may have.
• Where are the financials? Is the valuation accurate or exaggerated? A publicly traded company should have public information filed with the SEC. Pay close attention to any criminal indictments, investigations, or trading violations.
• Is the company paying for its own promotions? This isn’t always surefire sign, but it’s generally a frowned-upon practice. It definitely warrants further investigation. If you see a flood of promotions over a short period of time, it’s probably for a reason.

Ultimately, these “pump and dump” scams are an insult to the market, which is an outlet for real and honest companies to make a real and honest dollar.

It’s also an insult to investors who, as a whole, are losing billions to the fraud network.

The legal marijuana industry was achieved with significant time and a slew of advocating and politicking. I would hate to see it continue to be tainted by petty criminals and greedy “entrepreneurs.” I would also hate to see other individual investors become victims of an avoidable scam.

The marijuana market (and penny stocks) has massive untapped potential. There is real money to be made here. Don’t let this list of toxic stocks spoil your optimism.  

Just stay diligent, and as always, maintain a skeptical eye.

If you come across a promotion that promises phenomenal gains but doesn’t have the information to back it up…

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