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FINRA And The SEC Deflate Marijuana Stocks, For Now

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Marijuana Investors Beware: SEC Warns Traders Of Fraud In The Industry

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SEC Halts Trading Of GrowLife, Here&#39;s Why

PETROTECH OIL & GAS INC by Petrotech Oil & Gas, Inc.

Petrotech Oil & Gas Inc

This is part one of a four-part series with <a href="http://420investor.com">420 Investor</a> Alan Brochstein.

	Through most of the first quarter, cannabis stocks were on fire. 

	Unfortunately, the cannabis-rally has fizzled. Although the sector, as measured by the <a href="http://www.benzinga.com/index/$BZMJ" style="font-size:13px;">Benzinga 420 Marijuana Index</a>, has more than doubled since the end of 2013, and is up 300 percent from the end of 2012, it has dropped about 60 percent since peaking eight weeks ago. Most stocks have returned to their longer-term moving averages.

	Though momentum stocks have been under pressure across the market, the cannabis collapse ties in closely with recently elevated efforts by FINRA and the SEC. While the SEC's intent to weed out bad actors is a good thing for the sector on a long-term basis, the recent actions have left a cloud of uncertainty -- that has led to a broad lack of investor confidence. 

	Related: <a href="http://www.benzinga.com/news/14/05/4563162/marijuana-investors-beware-sec-warns-traders-of-fraud-in-the-industry">Marijuana Investors Beware: SEC Warns Traders Of Fraud In The Industry</a>

	It <a href="http://www.benzinga.com/news/14/02/4335253/3-things-that-could-extinguish-the-reefer-rally">has been speculated</a> the SEC could step up its involvement in the sector, and recent haltings have proven to be bad for the sector. Since early March, seven marijuana-related companies have been suspended:

	Mar. 5: Aventura Equities (OTC: <a class="ticker" href="/stock/avne#OTC">AVNE</a>)

	Mar. 14: Petrotech Oil and Gas (OTC: <a class="ticker" href="/stock/ptog#OTC">PTOG</a>)

	Mar. 21: Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC">CDFT</a>)

	Mar. 27:Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>)

	Apr. 10: GrowLife (OTC: <a class="ticker" href="/stock/phot#OTC">PHOT</a>)

	May 7: Cannabusiness Group (OTC: <a class="ticker" href="/stock/cbgi#OTC">CBGI</a>)

	May 16: Fusion Pharm (OTC: <a class="ticker" href="/stock/fspm#OTC">FSPM</a>)

	The first three suspensions didn't really faze the market, since none of those companies were considered market leaders. The suspension of Advanced Cannabis Solutions was a shock to traders, however, as it is one of the largest companies in terms of market-cap.

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71814-o.pdf">announcement from the SEC</a> also introduced a new twist: The SEC can suspend a company's trading even when the company itself has not been accused of wrong-doing. In the case of Advanced Cannabis Solutions, the SEC pointed to the potential actions of a third-party.

	The next and most damaging suspension was GrowLife, considering they were likely the most widely held stock in the sector. The company, which is a frequent filer with the SEC, had run up from a Q3 low near $0.03 to a $0.78 high in March. Share prices soared because investors embraced <a href="http://www.theglobeandmail.com/globe-investor/news-sources/?mid=prnews.20131014.LA96701">the company’s "GIFT"</a> strategy that provides capital to growers.

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71924-o.pdf">SEC halt announcement</a> cited  "concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in GrowLife’s common stock."

	The sixth suspension, Cannabusiness Group, was less disruptive since the company was not widely held, but Friday’s Fusion Pharm suspension pushed the market to recent lows. The <a href="http://www.sec.gov/litigation/suspensions/2014/34-72177-o.pdf">SEC order</a> was much more specific, calling into question the company’s accounting.

	Denver-based Fusion Pharm appeared to be very busy filling customer orders, but has never filed any audited statements. Both Cannabusiness Group and Fusion Pharm traded on the OTC Pink Market.

	The cost of suspension, which leads to securities falling onto the Grey Sheets after their two-week halting, is quite high. Advanced Cannabis Solutions trades at about 50 percent of its price prior to suspension, while the other stocks that have reopened have lost 80 percent or more of their prior value.

	Suspension of trading is bad enough, but it appears the real punishment is in the aftermath, where investors must trade the stocks without bids and offers. Even if the SEC were to come out with a "clean bill of health", which it doesn't offer, the company would still be required to reapply for a market, which takes substantial time.

	It is difficult to blame investors for moving to the sidelines in this environment. The bottom-line is that traders are better served than ever in this environment to double down on their fundamental efforts to make sure that the companies in which they are investing are legitimate.

	Don't forget to register for the first Annual Cannabis Investor Conference... check it out <a href="http://weedstockconference.com/">here</a>!
<ul><li><a href="http://www.benzinga.com/general/education/14/05/4574713/should-cannabis-investors-fight-the-sec#">Part 2: Should Cannabis Investors Fight The SEC?</a></li></ul>

The SEC posted a <a href="http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541842876#.U3YhmlhdVEl">press release</a> warning investors of fraud in the sector Friday morning, following the seventh trading halt in two months in the marijuana sector.

	The press release warns of "potential fraud in microcap companies that claim their operations relate to the marijuana industry," which confirms sector speculation that more halts are to come. The Microcap Fraud Task Force of the SEC Enforcement division will continue to "Scour the microcap market and proactively [identify] companies with publicly disseminated information that appear to be inadequate or potentially inaccurate."

	The fact that the SEC is pursing companies with inadequate or inaccurate information puts almost the entire industry at risk of being halted. A majority of marijuana stocks are traded on the Pink OTC market, where the required financial disclosure is incredibly minimal.

	Related: <a href="http://www.benzinga.com/top-stories/14/05/4543855/colorado-legislature-approves-banking-system-for-marijuana-businesses">Colorado Legislature Approves Banking System For Marijuana Businesses</a>

	Along with the press release warning investors of fraud in the sector, the SEC also posted a page titled "<a href="http://investor.gov/news-alerts/investor-alerts/investor-alert-marijuana-related-investments#.U3YlaVhdVEl" style="font-size:12.727272033691406px;">Investor Alert: Marijuana-Related Investments</a>," which is basically the SEC version of a guide to investing the the marijuana industry. The alert notes in the opening paragraph how frequent haltings have become  and heavily stresses the risk involved in investing in the volatile marijuana market.

	It warns of investing in companies that have previously been halted by the SEC, securities that are used in pump-and-dump email scams, companies with large amounts of insider holdings, and frequent (and exaggerated) press releases. It also warns of unregistered offerings, which is very concerning considering many companies in the sector have never filed any documents with the SEC.

	Since March, Cannabusiness Group (OTC: CGBI), Growlife (OTC: <a class="ticker" href="/stock/phot#OTC" style="font-size:12.727272033691406px;">PHOT</a>), Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC" style="font-size:12.727272033691406px;">CANN</a>), Aventura Equities (OTC: <a class="ticker" href="/stock/avne#OTC" style="font-size:12.727272033691406px;">AVNE</a>), Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC" style="font-size:12.727272033691406px;">CDFT</a>) and Petrotech Oil and Gas (OTC: <a class="ticker" href="/stock/ptog#OTC" style="font-size:12.727272033691406px;">PTOG</a>) have all been brought to a halt.

	As of Friday morning, Fusion Pharm (OTC: <a class="ticker" href="/stock/fspm#OTC" style="font-size:12.727272033691406px;">FSPM</a>) became the seventh stock halted in the sector in under three months. The SEC press release noted that five marijuana-sector stocks have been halted, but it has actually been seven. 

	Until Friday morning, all of the press releases announcing the halts have been vague, giving traders very limited information about what they are investigating.

	The Fusion Pharm <a href="http://www.sec.gov/litigation/suspensions/2014/34-72177.pdf" style="font-size:12.727272033691406px;">press release</a> was the most specific, stating that the security was halted because the company was lacking "current and accurate information about the company because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) the company's assess; (2) the company's revenues; (3) the company's financial statements; (4) the companies business transactions; (5) the company's current financial condition."

	The commission also advised traders to considering forgoing any information provided by the company that is currently available or is being made available in the coming days. 

	To learn more about the marijuana industry, check out the <a href="http://420investor.com">420 Investor</a> and the <a href="http://www.benzinga.com/index/$BZMJ">Benzinga Marijuana Index</a>.

GrowLife Halted

	Thursday morning, the SEC halted trading of GrowLife, Inc. (OTC: <a class="ticker" href="/stock/phot#OTC">PHOT</a>) based on “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in GrowLife’s common stock.” 

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71924-o.pdf" style="font-size:13px;">statement from the SEC </a>announcing the halt hints to traders that there have been exchanges of inaccurate/inadequate financial information.  

	A concern of many traders is the recent insider selling from Director &amp; Executive Vice President Robert Hunt. Since April 3, Hunt has <a href="http://www.otcmarkets.com/stock/PHOT/insider-transactions">sold off more than 500,000</a> shares of Growlife. Though this insider selling may be purely coincidental, it raises the question of managerial knowledge regarding the then upcoming halt. 

	Besides the noted insider selling, Eric D. Shevin resigned from the board of directors on April 1, just over one year after joining the company. 

	Read GrowLife's Reponse to the SEC notice <a href="http://www.benzinga.com/news/14/04/4462482/update-growlife-issues-response-to-sec-notice">here</a>.

	To date, including GrowLife, there have been five trading suspensions for cannabis companies, including Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>), Aventura Equities, Inc., Citadel EFT (OTC: <a href="http://www.benzinga.com/stock/cdft#OTC">CDFT</a>) and PetroTech (OTC: <a href="http://www.benzinga.com/stock/ptog#OTC">PTOG</a>). 

	Advanced Cannabis Solutions, which was halted on March 27, just resumed trading today, April 10 (to learn more about CANN’s halting, <a href="http://www.benzinga.com/news/14/03/4425160/advanced-cannabis-solutions-temporarily-gets-cann-ed">click here</a>).

	Sector Security 

	The Financial Industry Regulatory Authority (FINRA) website <a href="http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P325352">openly discourages investment in marijuana stocks</a>, stating that “there is likely no opportunity” for investors, further stressing the minimal reporting standards of the OTC markets. 

	In contrast to FINRA’s grim outlook for the sector, the cannabis space has been incredibly bullish for traders. 

	Management is in the spotlight for companies in the marijuana space, because the decisions they make for their company can positively (over very negatively) impact the entire industry. 

	A way for ‘high-up’ management to improve transparency and investor confidence would be to self-report financial information and company details that exceed the minimum OTC requirements. This move could help distinguish legitimacy in the space, and discourage further SEC involvement. Managerial leadership is a crucial aspect to the cannabis-sectors' longevity, so exceeding expectations could go a long way.

	See also: <a href="http://www.benzinga.com/economics/14/04/4458849/can-marijuana-traders-handle-a-stock-meltdown">Can Marijuana Traders Handle A Stock Meltdown?</a>

	The OTC markets are notorious for hosting companies with no real business. Benzinga analyst Joel Elconin referred to the OTC market as the “Wild Wild West,” noting that the lax parameters of OTC policy creates an environment where “there are no rules.” Cannabis companies could set the bar on the new generation of penny-stocks, but to do so, they must start to take innovative measures regarding reporting standards. 

	The regulations for major markets such as <a href="http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_4_3&amp;manual=%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F">NASDAQ</a> provide an environment where investors can make confident trades in companies that provide transparent data. The <a href="http://www.otcmarkets.com/learn/otc-company-reporting">OTC reporting requirements</a> provide the opposite environment, where companies report the bare minimum. 

	The cannabis-sector is an exciting new opportunity for traders and long term investors, but if reporting standards are not improved, more companies will be halted, which will negatively impact the space. 

	The federal government is already skeptical of newly-legal marijuana businesses, so under-reporting will do nothing but bait the hook for a halt.

	For more of the latest in the cannabis industry, check out the <a href="http://marketfy.com/store/item/420investor/">420 Investor</a> on Marketfy.

SEC Halts Trading Of GrowLife, Here's Why

Even factoring in a rough conclusion, cannabis stocks had a phenomenal first quarter. 

	Being bullish on this sector could lead to huge gains if correctly positioned, but it also could mean detrimental losses if the sector is misplayed.

	A lot of traders are ‘all in’ on cannabis stocks. There is no reason not to be bullish on marijuana stocks, but traders must  recognize the potential risks. 

	The valuations of companies are challenging to understand for every stock in the sector.  This isn't surprising, because canna-businesses are still in the very early stages of transforming from back-room operations to a publicly traded, big-money industry. 

	There is a ton of money flowing into the market, and much of it comes from novice investors that want to cash in on the ‘Green Rush.’ 

	Investing in marijuana stocks is risky. Not only are valuations high (with off-the-charts positive sentiment), but with almost all of the stocks trading OTC (many "Pink"), disclosure is lacking. 

	Consequently, traders have to worry not only about the companies will be winners, but how realistic the valuations are. But these risks are inherent to all penny-stock investing.

	Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>) and other marijuana companies that have been halted (such as Aventura Equities, Inc. (OTC: <a class="ticker" href="/stock/avne#OTC">AVNE</a>), PetroTech (OTC: <a class="ticker" href="/stock/ptog#OTC">PTOG</a>) and Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC">CDFT</a>)), have been a demonstration of the risk affiliated with trading marijuana stocks, serving as a great example of why traders must practice risk-management. 

	See also: <a href="http://www.benzinga.com/news/14/02/4335253/3-things-that-could-extinguish-the-reefer-rally">3 Things That Could Extinguish The 'Reefer Rally'</a>

	As with any new sector, cannabis stocks are likely to be very volatile. Traders must be prepared for this volatility. If not, it will be easy to buy high, panic and sell low. This is a sure-fire way to lose money. Traders that go all-in on the sector run the risk of seeing a pullback, and having no ability to buy low because they are already fully invested.

	And, pullbacks are inevitable.

	Traders that hold an individual security in large size take an even bigger risk. No one has a crystal ball, so diversified holdings are key. 

	No matter how confident in the market, always be prepared for a downswing. Don't put everything into the sector, and make sure that you holdings are diversified. 

	Understand valuations, use charts, and focus on quality (or at least understand where a company lacks it).  Many of the dotcom winners are still below their crazy levels.  

	Remember that a good company and a good stock aren't the same thing, and don't be afraid to take some profits along the way. 

	Disclosure: The 420 Investor has no positions in any of the stocks mentioned.

Economics

Trading Ideas

Can Marijuana Traders Handle A Stock Meltdown?

Petrotech Oil & Gas

This is part one of a four-part series with <a href="http://420investor.com">420 Investor</a> Alan Brochstein.

	Through most of the first quarter, cannabis stocks were on fire. 

	Unfortunately, the cannabis-rally has fizzled. Although the sector, as measured by the <a href="http://www.benzinga.com/index/$BZMJ" style="font-size: 13px;">Benzinga 420 Marijuana Index</a>, has more than doubled since the end of 2013, and is up 300 percent from the end of 2012, it has dropped about 60 percent since peaking eight weeks ago. Most stocks have returned to their longer-term moving averages.

	Though momentum stocks have been under pressure across the market, the cannabis collapse ties in closely with recently elevated efforts by FINRA and the SEC. While the SEC&#39;s intent to weed out bad actors is a good thing for the sector on a long-term basis, the recent actions have left a cloud of uncertainty -- that has led to a broad lack of investor confidence.&nbsp;

	Related: <a href="http://www.benzinga.com/news/14/05/4563162/marijuana-investors-beware-sec-warns-traders-of-fraud-in-the-industry">Marijuana Investors Beware: SEC Warns Traders Of Fraud In The Industry</a>

	It <a href="http://www.benzinga.com/news/14/02/4335253/3-things-that-could-extinguish-the-reefer-rally">has been speculated</a> the SEC could step up its involvement in the sector, and recent haltings have proven to be bad for the sector. Since early March, seven marijuana-related companies have been suspended:

	Mar. 5: Aventura Equities (OTC: <a class="ticker" href="/stock/avne#OTC">AVNE</a>)

	Mar. 14: Petrotech Oil and Gas (OTC: <a class="ticker" href="/stock/ptog#OTC">PTOG</a>)

	Mar. 21: Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC">CDFT</a>)

	Mar. 27:Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>)

	Apr. 10: GrowLife (OTC: <a class="ticker" href="/stock/phot#OTC">PHOT</a>)

	May 7: Cannabusiness Group (OTC: <a class="ticker" href="/stock/cbgi#OTC">CBGI</a>)

	May 16: Fusion Pharm (OTC: <a class="ticker" href="/stock/fspm#OTC">FSPM</a>)

	The first three suspensions didn&#39;t really faze the market, since none of those companies were considered market leaders. The suspension of Advanced Cannabis Solutions was a shock to traders, however, as it is one of the largest companies in terms of market-cap.

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71814-o.pdf">announcement from the SEC</a> also introduced a new twist: The SEC can suspend a company&#39;s trading even when the company itself has not been accused of wrong-doing. In the case of Advanced Cannabis Solutions, the SEC pointed to the potential actions of a third-party.

	The next and most damaging suspension was GrowLife, considering they were likely the most widely held stock in the sector. The company, which is a frequent filer with the SEC, had run up from a Q3 low near $0.03 to a $0.78 high in March. Share prices soared because investors embraced <a href="http://www.theglobeandmail.com/globe-investor/news-sources/?mid=prnews.20131014.LA96701">the company&rsquo;s &quot;GIFT&quot;</a> strategy that provides capital to growers.

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71924-o.pdf">SEC halt announcement</a> cited&nbsp; &quot;concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in GrowLife&rsquo;s common stock.&quot;

	The sixth suspension, Cannabusiness Group, was less disruptive since the company was not widely held, but Friday&rsquo;s Fusion Pharm suspension pushed the market to recent lows. The <a href="http://www.sec.gov/litigation/suspensions/2014/34-72177-o.pdf">SEC order</a> was much more specific, calling into question the company&rsquo;s accounting.

	Denver-based Fusion Pharm appeared to be very busy filling customer orders, but has never filed any audited statements. Both Cannabusiness Group and Fusion Pharm traded on the OTC Pink Market.

	The cost of suspension, which leads to securities falling onto the Grey Sheets after their two-week halting, is quite high. Advanced Cannabis Solutions trades at about 50 percent of its price prior to suspension, while the other stocks that have reopened have lost 80 percent or more of their prior value.

	Suspension of trading is bad enough, but it appears the real punishment is in the aftermath, where investors must trade the stocks without bids and offers. Even if the SEC were to come out with a &quot;clean bill of health&quot;, which it doesn&#39;t offer, the company would still be required to reapply for a market, which takes substantial time.

	It is difficult to blame investors for moving to the sidelines in this environment. The bottom-line is that traders are better served than ever in this environment to double down on their fundamental efforts to make sure that the companies in which they are investing are legitimate.

	Don&#39;t forget to register for the first Annual Cannabis Investor Conference... check it out&nbsp;<a href="http://weedstockconference.com/">here</a>!
<ul><li><a href="http://www.benzinga.com/general/education/14/05/4574713/should-cannabis-investors-fight-the-sec#">Part 2: Should Cannabis Investors Fight The SEC?</a></li></ul>

The SEC posted a <a href="http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541842876#.U3YhmlhdVEl">press release</a> warning investors of fraud in the sector Friday morning, following the seventh trading halt in two months in the marijuana sector.

	The press release warns of &quot;potential fraud in microcap companies that claim their operations relate to the marijuana industry,&quot; which confirms sector speculation that more halts are to come. The Microcap Fraud Task Force of the SEC Enforcement division will continue to &quot;Scour the microcap market and proactively [identify] companies with publicly disseminated information that appear to be inadequate or potentially inaccurate.&quot;

	The fact that the SEC is pursing companies with inadequate or inaccurate information puts almost the entire industry at risk of being halted. A majority of marijuana stocks are traded on the Pink OTC market, where the required financial disclosure is incredibly minimal.

	Related: <a href="http://www.benzinga.com/top-stories/14/05/4543855/colorado-legislature-approves-banking-system-for-marijuana-businesses">Colorado Legislature Approves Banking System For Marijuana Businesses</a>

	Along with the press release warning investors of fraud in the sector, the SEC also posted a page titled &quot;<a href="http://investor.gov/news-alerts/investor-alerts/investor-alert-marijuana-related-investments#.U3YlaVhdVEl" style="font-size: 12.727272033691406px;">Investor Alert: Marijuana-Related Investments</a>,&quot;&nbsp;which is basically the SEC version of a guide to investing the the marijuana industry. The alert notes&nbsp;in the opening paragraph&nbsp;how frequent haltings have become &nbsp;and heavily stresses the risk involved in investing in the volatile marijuana market.

	It warns of investing in companies that have previously been halted by the SEC, securities that are used in pump-and-dump email scams, companies with large amounts of insider holdings, and frequent (and exaggerated) press releases. It also warns of unregistered offerings, which is very concerning considering many companies in the sector have never filed any documents with the SEC.

	Since March, Cannabusiness Group (OTC: CGBI), Growlife (OTC: <a class="ticker" href="/stock/phot#OTC" style="font-size: 12.727272033691406px;">PHOT</a>), Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC" style="font-size: 12.727272033691406px;">CANN</a>), Aventura Equities (OTC: <a class="ticker" href="/stock/avne#OTC" style="font-size: 12.727272033691406px;">AVNE</a>), Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC" style="font-size: 12.727272033691406px;">CDFT</a>) and Petrotech Oil and Gas (OTC: <a class="ticker" href="/stock/ptog#OTC" style="font-size: 12.727272033691406px;">PTOG</a>) have all been brought to a halt.

	As of Friday morning, Fusion Pharm (OTC: <a class="ticker" href="/stock/fspm#OTC" style="font-size: 12.727272033691406px;">FSPM</a>) became the seventh stock halted in the sector in under three months. The SEC press release noted that five marijuana-sector stocks have been halted, but it has actually been seven.&nbsp;

	Until Friday morning, all of the press releases announcing the halts have been vague, giving traders very limited information about what they are investigating.

	The Fusion Pharm <a href="http://www.sec.gov/litigation/suspensions/2014/34-72177.pdf" style="font-size: 12.727272033691406px;">press release</a> was the most specific, stating that the security was halted because the company was lacking &quot;current and accurate information about the company because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) the company&#39;s assess; (2) the company&#39;s revenues; (3) the company&#39;s financial statements; (4) the companies business transactions; (5) the company&#39;s current financial condition.&quot;

	The commission also advised traders to considering forgoing any information provided by the company that is currently available or is being made available in the coming days.&nbsp;

	To learn more about the marijuana industry, check out the <a href="http://420investor.com">420 Investor</a> and the <a href="http://www.benzinga.com/index/$BZMJ">Benzinga Marijuana Index</a>.&nbsp;

GrowLife Halted

	Thursday morning, the SEC halted trading of GrowLife, Inc. (OTC: <a class="ticker" href="/stock/phot#OTC">PHOT</a>) based on &ldquo;concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in GrowLife&rsquo;s common stock.&rdquo; 

	The <a href="http://www.sec.gov/litigation/suspensions/2014/34-71924-o.pdf" style="font-size: 13px;">statement from the SEC </a>announcing the halt hints to traders that there have been exchanges of inaccurate/inadequate financial information. &nbsp;

	A concern of many traders is the recent insider selling from Director &amp; Executive Vice President Robert Hunt. Since April 3, Hunt has <a href="http://www.otcmarkets.com/stock/PHOT/insider-transactions">sold off more than 500,000</a> shares of Growlife. Though this insider selling may be purely coincidental, it raises the question of managerial knowledge regarding the then upcoming halt. 

	Besides the noted insider selling, Eric D. Shevin resigned from the board of directors on April 1, just over one year after joining the company. 

	Read GrowLife&#39;s Reponse to the SEC notice <a href="http://www.benzinga.com/news/14/04/4462482/update-growlife-issues-response-to-sec-notice">here</a>.

	To date, including GrowLife, there have been five trading suspensions for cannabis companies, including Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>), Aventura Equities, Inc., Citadel EFT (OTC: <a href="http://www.benzinga.com/stock/cdft#OTC">CDFT</a>) and PetroTech (OTC: <a href="http://www.benzinga.com/stock/ptog#OTC">PTOG</a>). 

	Advanced Cannabis Solutions, which was halted on March 27, just resumed trading today, April 10 (to learn more about CANN&rsquo;s halting, <a href="http://www.benzinga.com/news/14/03/4425160/advanced-cannabis-solutions-temporarily-gets-cann-ed">click here</a>).

	Sector Security 

	The Financial Industry Regulatory Authority (FINRA) website <a href="http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P325352">openly discourages investment in marijuana stocks</a>, stating that &ldquo;there is likely no opportunity&rdquo; for investors, further stressing the minimal reporting standards of the OTC markets. 

	In contrast to FINRA&rsquo;s grim outlook for the sector, the cannabis space has been incredibly bullish for traders. 

	Management is in the spotlight for companies in the marijuana space, because the decisions they make for their company can positively (over very negatively) impact the entire industry. 

	A way for &lsquo;high-up&rsquo; management to improve transparency and investor confidence would be to self-report financial information and company details that exceed the minimum OTC requirements. This move could help distinguish legitimacy in the space, and discourage further SEC involvement. Managerial leadership is a crucial aspect to the cannabis-sectors&#39; longevity, so exceeding expectations could go a long way.

	See also: <a href="http://www.benzinga.com/economics/14/04/4458849/can-marijuana-traders-handle-a-stock-meltdown">Can Marijuana Traders Handle A Stock Meltdown?</a>

	The OTC markets are notorious for hosting companies with no real business. Benzinga analyst Joel Elconin referred to the OTC market as the &ldquo;Wild Wild West,&rdquo; noting that the lax parameters of OTC policy creates an environment where &ldquo;there are no rules.&rdquo; Cannabis companies could set the bar on the new generation of penny-stocks, but to do so, they must start to take innovative measures regarding reporting standards. 

	The regulations for major markets such as <a href="http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_4_3&amp;manual=%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F">NASDAQ</a> provide an environment where investors can make confident trades in companies that provide transparent data. The <a href="http://www.otcmarkets.com/learn/otc-company-reporting">OTC reporting requirements</a> provide the opposite environment, where companies report the bare minimum. 

	The cannabis-sector is an exciting new opportunity for traders and long term investors, but if reporting standards are not improved, more companies will be halted, which will negatively impact the space. 

	The federal government is already skeptical of newly-legal marijuana businesses, so under-reporting will do nothing but bait the hook for a halt.

	For more of the latest in the cannabis industry, check out the <a href="http://marketfy.com/store/item/420investor/">420 Investor</a> on Marketfy.&nbsp;

Even factoring in a rough conclusion, cannabis stocks had a phenomenal first quarter.&nbsp;

	Being bullish on this sector could lead to huge gains if correctly positioned, but it also could mean detrimental losses if the sector is misplayed.

	A lot of traders are &lsquo;all in&rsquo; on cannabis stocks. There is no reason not to be bullish on marijuana stocks, but traders must&nbsp; recognize the potential risks.&nbsp;

	The valuations of companies are challenging to understand for every stock in the sector.&nbsp; This isn&#39;t surprising, because canna-businesses are still in the very early stages of transforming from back-room operations to a publicly traded, big-money industry.&nbsp;

	There is a ton of money flowing into the market, and much of it comes from novice investors that want to cash in on the &lsquo;Green Rush.&rsquo;&nbsp;

	Investing in marijuana stocks is risky. Not only are valuations high (with off-the-charts positive sentiment), but with almost all of the stocks trading OTC (many &quot;Pink&quot;), disclosure is lacking.&nbsp;

	Consequently, traders have to worry not only about the companies will be winners, but how realistic the valuations are. But these risks are inherent to all penny-stock investing.

	Advanced Cannabis Solutions (OTC: <a class="ticker" href="/stock/cann#OTC">CANN</a>) and other marijuana companies that have been halted (such as Aventura Equities, Inc. (OTC: <a class="ticker" href="/stock/avne#OTC">AVNE</a>), PetroTech (OTC: <a class="ticker" href="/stock/ptog#OTC">PTOG</a>) and Citadel EFT (OTC: <a class="ticker" href="/stock/cdft#OTC">CDFT</a>)), have been a demonstration of the risk affiliated with trading marijuana stocks, serving as a great example of why traders must practice risk-management.&nbsp;

	See also: <a href="http://www.benzinga.com/news/14/02/4335253/3-things-that-could-extinguish-the-reefer-rally">3 Things That Could Extinguish The &#39;Reefer Rally&#39;</a>

	As with any new sector, cannabis stocks are likely to be very volatile. Traders must be prepared for this volatility. If not, it will be easy to buy high, panic and sell low. This is a sure-fire way to lose money. Traders that go all-in on the sector run the risk of seeing a pullback, and having no ability to buy low because they are already fully invested.

	And, pullbacks are inevitable.

	Traders that hold an individual security in large size take an even bigger risk. No one has a crystal ball, so diversified holdings are key.&nbsp;

	No matter how confident in the market, always be prepared for a downswing. Don&#39;t put everything into the sector, and make sure that you holdings are diversified.&nbsp;

	Understand valuations, use charts, and focus on quality (or at least understand where a company lacks it).&nbsp; Many of the dotcom winners are still below their crazy levels. &nbsp;

	Remember that a good company and a good stock aren&#39;t the same thing, and don&#39;t be afraid to take some profits along the way.&nbsp;

	Disclosure: The 420 Investor has no positions in any of the stocks mentioned.

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