A massive marijuana probe is in the works — and this time the smoke is coming from Wall Street.
The Securities and Exchange Commission is investigating fresh allegations that a coterie of financiers has been minting millions as they pump the shares of money-losing pot companies, The Post has learned.
Weed-related firms that face the SEC’s sniff test include GrowLife (PHOT), a supplier to pot farmers, and DigiPath (DIGP), a consulting outfit that trains people how to market marijuana, sources said.
Also under scrutiny are Vape Holdings (VAPE), which makes pot-vaporization gear; and GrowBlox Sciences (GBLX), which peddles climate-controlled light chambers designed to grow green, glistening dope buds fit for medical use, according to a person briefed on the situation.
With 20 states now legalizing some sort of pot-related activity — and US sales poised to quadruple to $10.2 billion by 2018, according to ArcView, a research firm — the SEC is stepping up its oversight of companies operating in the sector.
“The concern is that these people are better at putting out press releases and manipulating stocks than they are at running a real business,” said a person close to the situation.
None of the above mentioned companies has been accused of any wrongdoing. Representatives of the firms didn’t respond to repeated requests for comment.
One of the companies, GrowLife, had trading in its shares halted in April by the SEC, which cited concerns about “potentially manipulative transactions” in its shares.
GrowLife reported a net loss of $52.2 million in the first half of 2014 on sales of $4.6 million.
Penny stocks like GrowLife stay in business despite gallons of red ink because when they need more operating cash, they call upon a small number of lenders to pony up the capital in exchange for bonds convertible into stock.
GrowLife rarely, if ever, pays off the bonds — opting rather to convert them into stock. As of June 30, GrowLife had authorized 3 billion shares of stock and had 830 million shares outstanding.
One investor this year agreed to have a $30,000 loan to GrowLife converted into 4.7 million shares priced at just over a half-cent per share. With GrowLife shares closing Friday at 4 cents, down a penny in the session, that financier’s investment is now worth $188,000.
Among those who have attracted the SEC’s attention is David Weiner, the investor who engineered the reverse mergers that created GrowLife and DigiPath. He has lent the companies millions of dollars in exchange for shares priced at fractions of a penny, according to securities filings.
That’s a potential red flag for regulators, says Randy Katz, a Los Angeles-based securities lawyer at Baker Hostetler who has advised pot companies looking to go public, but who has no knowledge of recent SEC probes.
“The fact I’m going to issue stock at half a cent doesn’t make me a fraudster,” Katz told The Post. “But if I issue a gazillion shares at half a cent, especially in a hot industry, then the odds are pretty good that I’m going to attract scrutiny.”
Weiner, who has not been accused of any securities law violations, did not comment.
Other GrowLife investors who have taken big stakes on the cheap include Fred Knoll, an MIT-educated investor who has joined Weiner on deals in the past, filings show. Knoll didn’t respond to requests for comment.