AP Photo/Seth Wenig
Make sure you do your homework before investing in marijuana stocks.
- TD Ameritrade is warning investors to steer clear of marijuana stocks.
- The stock brokerage called out Tilray's wild swings in recent weeks as an example of "extreme volatility" and dangers to potential investors.
- Watch the video below.
TD Ameritrade is warning investors to steer clear of the burgeoning marijuana industry.
"The marijuana and cannabis industry - sometimes referred to as the Wild West of investing - is littered with high-flyers, potentially over-valued companies, and even scams," the stock brokerage firm said in a three-minute video posted on its Youtube account.
Young traders have flocked to stock trading apps from companies like Robinhood and TD Ameritrade to cash in on the hype around marijuana stocks.
TD Ameritrade, however, is warning investors to be cautious. They likened the frenzy around prominent marijuana stocks like Canopy Growth and the NASDAQ-listed Tilray to other market bubbles, like the dot-com boom of the early 2000s and the housing market collapse in 2008.
"As marijuana moves from the black market to the stock market, the potential opportunity is easy to see," the young professional-looking man in the video said. "This excitement coupled with a hazy regulatory outlook means extreme volatility and high-risk for investors."
For example, Tilray - which was the first Canadian marijuana producer to go public on the NASDAQ - saw its shares soar 93% in on September 19 before giving up all of its gains. The Securities and Exchange Commission (SEC) halted Tilray's trading for volatility five times in a single day of trading.
The stock is up over 600% since the initial public offering in July.
"It's hard not to see Tilray's chart as a textbook example of a market bubble - a poster child for the fear of missing out on the next big thing," TD Ameritrade said.
Tilray did not immediately respond to a request for comment.
The SEC issued a warning in September as well, saying investors should be aware of the risks of fraud and market manipulation in the nascent sector.
"Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam," the SEC said.
It's crucial to "do your homework" if you want to invest in marijuana stocks, or at least be aware of the high risk, TD Ameritrade said.
"Consider waiting until the industry has matured before investing," the video said.
Not all investors think the frenzy around marijuana stocks is a bubble.
Famed short-seller Andrew Left is building out a fund to focus on both long and short plays in the marijuana sector.
"There's an obvious fascination with investors, but at the same time it's a space that's open for hype," Left told Business Insider in a recent interview. "So I think it's very difficult for some investors to decipher the real players."
Watch TD Ameritrade's video here: