Since the widespread legalization of cannabis, 2019 has been a promising year for the budding weed industry. Dubbed as “Cannabusinesses,” some producers of legal marijuana have performed surprisingly well. But you must understand that there are some bad apples in the bunch. For every Canopy Growth, there are several more companies that could lose you a lot of money.
Amid the recent downtrend in the market, a number of cannabis stocks are potentially selling at a discount. In light of the current situation, it has become clear that the weed industry is gearing up for the next wave of volatility. This is likely to affect both the major and minor players of the industry.
Considering that the controversial weed industry was illegal, the transition to a completely legalized industry is not something that can be expected to happen smoothly. The recent scandals, such as CannTrust illegally growing cannabis, have caused plenty of stocks in the marijuana sector to simmer.
A marijuana company you need to avoid
Namaste Technologies (TSXV:N) seemed like the company to promise an online cannabis platform that could cater to the needs of the increasingly massive cannabis industry. The reality of the situation is far away from the potential the company had.
The cannabis-centred e-commerce technology company fired its CEO, Sean Dollinger, earlier this year, following Citron Research’s report that put a sizable dent in the share price of Namaste. The company was accused of making fake claims of a Nasdaq listing in order to get investors to buy stock. The company’s board sprang into action to form a special committee to investigate the claims.
The result of the committee’s investigation was that one of the accusations made against the company did have merits, with the wrongdoing exposed at the CEO level. The internal investigation found that Sean Dollinger had committed securities fraud.
He was effectively fired for breaches of fiduciary duty, and evidence of self-dealing regarding the sale and the subsequent transactions of Namaste’s U.S. subsidiary Dolliger Enterprises. Dollinger and the head of Namaste Technologies’s head of marketing David Hughes had a beneficial interest in the subsidiary, and there was clearly a conflict of interest.
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Namaste stock remains in trouble
Still attempting to repair the investor trust Namaste has broken due to its internal management issues and a dishonest CEO, the company appointed an Interim CEO Meni Morim to help the company get back on track. While Namaste Technologies is trying to take advantage of two rapidly growing industries of e-commerce and weed, the company has still more questions about its future than it has solutions. It is safe to say that you should avoid the stock at all costs.
A fallen star
With some of the equities in the marijuana industry falling as much as 20% in the past month, you need to be selective when it comes to the weed stocks to invest in. With allegations of fraud and a plummeting stock price, Namaste Technologies seems to be out of the question.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in the companies mentioned.