Warning: Top 5 Hyped Penny Stocks with Red Flags

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The allure of penny stocks lies in their potential to deliver massive gains in a short period of time.

But in exchange for that opportunity, penny stocks carry TREMENDOUS risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

How is this possible? For starters, the majority of penny stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In short, OTC-traded penny stocks don’t meet the rigorous standards required to trade on major exchanges like the NYSE, NASDAQ, and AMEX.

As a result, they can go largely “unchecked” and their financial condition can be extremely difficult to analyze. In the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.

With this in mind, and to give you an idea of the kind of red flags to look for when you’re considering a penny stock, we’re taking a closer look at five of today’s most hyped penny stocks. These stocks are being touted by YouTube “influencers” with far-reaching audiences, carrying the risk of a “pump and dump”.

Sl # Name Ticker Last Close
1 Celsion Corporation NASDAQ: CLSN $1.23
2 Electrameccanica Vehicles Corp NASDAQ: SOLO $4.39
3 Sundial Growers Inc NASDAQ: SNDL $0.87
4 Future Fintech Group Inc NASDAQ: FTFT $4.06
5 Humbl Inc OTCMKTS: HMBL $1.40

 

# 1 Celsion Corporation (NASDAQ: CLSN)

Company Info: Celsion Corp is active in the biotechnology market. The company acts as a drug developer with product candidates like ThermoDox, a heat-activated liposomal encapsulation of doxorubicin. It is in Phase III clinical trial for the treatment of primary liver cancer and a Phase II clinical trial for the treatment of recurrent chest wall breast cancer. Its pipeline also includes GEN-1, a deoxyribonucleic acid (DNA) mediated immunotherapy for the localized treatment of ovarian and brain cancers.

Website:  www.celsion.com

Last Close: $1.23

Reason for the hype: The news of Celsion working on developing nucleic acid vaccines focused on SARS-CoV-2, ongoing Phase II studies of GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian cancer, and the PLACCINE vaccine development platform which is adaptable to creating vaccines for a multitude of pathogens

Latest 10-k report: https://sec.report/Document/0001493152-21-006382/

Red Flags:

  1. The company has been a loss-making company. For the years ended December 31, 2020, and 2019, the company incurred net losses of $21.5 million and $16.9 million, respectively. As of December 31, 2020, the Company had incurred approximately $312 million of cumulative net losses.
  2. The company currently has no product revenue and is not expected to generate any product revenue for the foreseeable future.
  3. CLSN has been financing its operations primarily through the net proceeds from the sales of equity, credit facilities, and amounts received under product licensing agreement with Yakult, and technology development agreement with Hisun. The process of developing ThermoDox®, GEN-1, and other product candidates and technologies requires significant research and development work and clinical trial studies, as well as significant manufacturing and process development efforts. This requires substantial financing, which the company currently lacks.
  4. On April 5th, Celsion announced the closing of a $15 million registered direct offering consisting of over 11.53 million shares sold at $1.30 per share. This, and any future offerings would lead to dilution, cutting down the profits of investors.
  5. Despite reporting losses year over year, the executive compensation for officers Michael H. Tardugno, Nicholas Borys, Khursheed Anwer, and Jeffrey W. Church increased in 2020 compared to 2019.
  6. On October 29, 2020, a putative securities class action (Spar v. Celsion Corporation, et al., Case No. 1:20-cv-15228) was filed against the Company and certain of its officers and directors alleging that the Company and Individual Defendants made false and misleading statements regarding one of the Company’s product candidates, ThermoDox®.
  7. In February 2021, a derivative shareholder lawsuit (Fidler v. Michael H. Tardugno et al., Case No. 3:21-cv-02662) was filed against the Company, as the nominal defendant, and certain of its directors and officers as defendants alleging breach of fiduciary duty and other claims arising out of alleged statements made by certain of the Company’s directors and/or officers regarding ThermoDox.
  8. On April 24, 2020, the Company had to do a $187,500 settlement for the derivative and putative class action lawsuit (O’Connor v. Braun et al., Docket No. MER-C-000068-19).
  9. The company had received notice from The Nasdaq Stock Market for lack of compliance with Nasdaq Listing Rule 5550(a)(2). If the company is unable to comply with one or more of the Nasdaq listing standards, it could get delisted from NASDAQ.
  10. The company has multiple loan agreements and significant debt.
  11. The charts show that the stocks is currently in a downtrend.

#2 Electrameccanica Vehicles Corp (NASDAQ: SOLO)

Company Info: Electrameccanica Vehicles Corp Ltd is a designer and manufacturer of electric vehicles. The company builds the all-electric SOLO, a single passenger vehicle developed to revolutionize the way people commute, as well as the Tofino, an elegant high-performance two-seater electric roadster sports car. Its operating segment includes Electric Vehicles and Custom build vehicles. The company generates maximum revenue from the Custom build vehicles segment. It’s Custom build vehicles segment includes the development and manufacture of high-end custom-built vehicles

Website:  www.electrameccanica.com

Last Close: $4.39

Reason for the hype: The rumors about the U.S. postal service looking at solo’s vehicles to see if they would be a good fit for mail delivery vehicles; $2.4 billion in preorders for the SOLO EV and Tofino roadster

Latest 10-k report: (20-F) https://sec.report/Document/0001104659-21-040303/

Red Flags:

  1. The company incurred a net loss and comprehensive loss of $63,046,905 and $58,832,999, respectively, during the year ended December 31, 2020, and a net loss and comprehensive loss of $23,212,698 and $22,314,225, respectively, during the year ended December 31, 2019. Increasing losses is not a good sign for any business. The company also has an accumulated deficit of $110,327,159 as of December 31, 2020.
  2. The company has minimal revenue and is expecting significant increases in costs and expenses to forestall profits for the foreseeable future, even if revenues are generated in the near term.
  3. The company notes in the annual report that they expect their operating losses to increase substantially in 2021 and thereafter, and also expect to continue to incur operating losses and to experience negative cash flows for the next several years.
  4. The company has only begun production but not the commercial delivery of its first electric vehicle despite being formed in February 2015. There is still no production from the factory that was unveiled nearly a year ago. The continued delays could make the car obsolete when they finally launch it.
  5. Even though there is an anticipated $2.4 billion revenue expected from preorders for the SOLO EV and Tofino roadster, the company notes in its latest annual report that it is not confident that the gross profit generated from the sale would be sufficient to cover its operating expenses.
  6. The compensation for the company’s CEO Michael Paul Rivera was $1,340,496 and for CFO Bal Bhullar was $700,639 in 2020, despite SOLO being a loss-making company.
  7. The company notes in its annual report that despite having cash and cash equivalents and a working capital surplus of $129,450,676 and $130,755,823, respectively, as of December 31, 2020, the company requires significant additional equity financing to continue operations. This is because the company expects to incur a significant ramp-up in costs and expenses through the launch of the flagship vehicle, the SOLO; as well as the ineligibility to obtain bank loans, or other forms of debt financing on terms that would be acceptable to the company.
  8. The company’s flagship vehicle SOLO is a single seater, which means it can only accommodate one passenger at a time. Many consumers would not prefer this car if they need to transport multiple people at once.
  9. The company has risk factors like immense competition from other EV Makers like Tesla and Ford, rising costs to produce the SOLO EV, and potential share dilution from future offerings to raise capital.
  10. The chart shows that there is a near-term resistance area for the stock.

#3 Sundial Growers Inc. (NASDAQ: SNDL)

Company Info: Sundial Growers Inc is engaged in producing and marketing of cannabis for the adult-use market. Some of its products are Lemon Riot, Daydream, Zen Berry, Twilight, Tropical Bliss, Pillow Talk, Citrus Punch, and others. The company’s primary focus is on producing and distributing inhalable products and brands (flower, pre-rolls, and vapes). It operates in two segments: Cannabis segment and Ornamental Flowers segment. Its Cannabis segment derives the majority of revenue.

Website:  www.sundialcannabis.com

Last Close: $0.87

Reason for the hype: The SAFE Banking Act being voted opening the way for banks to do business with cannabis companies without facing legal backlash from the government.

Latest 10-k report: https://sec.report/Document/0001564590-21-013936/

Red Flags:

  1. The company was incorporated in 2006, began cultivating cannabis in 2012, and started selling cannabis in 2018 after the federal legalization of adult-use cannabis in Canada. However, the company is yet to generate an annual profit.
  2. SNDL has been a loss-making company. The company reported a net loss of $206.3 million and $142.7 million, for the fiscal years ended December 31, 2020, and 2019, respectively, and had negative operating cash flows for each of these periods.
  3. The company was given a notice of a legal proceeding in the province of Quebec by another licensed cannabis producer, alleging breach of an LP Supply. The matter is currently in discovery.
  4. SNDL has been sued by former Vice President, Processing, for $630,000 in respect of unpaid consideration for certain equipment we have purchased from him, unpaid wages, and wrongful termination.
  5. There were several putative shareholder class action lawsuits filed between September 9, 2019, and November 1, 2019, against SNDL in connection with the company’s initial public offering. The class action lawsuits allege that the company made material misstatements and omissions in the prospectus and registration statement in connection with the IPO with respect to, among other things, the failure to disclose systemic quality control issues as well as the return of cannabis and termination of the supply agreement by one of the Company’s customers, and made misstatements as to revenue.
  6. On May 7, 2020, the company and officers were named as defendants in a lawsuit, captioned SUN. The complaint asserts a claim for alleged violations of U.S. federal securities laws, including Sections 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934, as well as claims for breach of contract, fraud in the inducement and negligent misrepresentation. The company admits in its latest annual report that even if the lawsuit is resolved in the company’s favor, could have a material adverse effect on the business, financial condition, results of operations, and liquidity and may force the company to reduce or cease operations or seek relief under the applicable bankruptcy or insolvency laws.
  7. The company was previously sued because it failed to disclose it had product returned to it because it contained mold and bits of rubber gloves.
  8. The company’s Olds facility site was issued three compliance orders for the grow facility by the Alberta Ministry of Labour and Immigration since January 2018.
  9. The company’s extreme run-up of more than 2,750% at its February high was fueled in part by Reddit and Robinhood traders aggressively driving up more speculative stocks for staggering but short-lived gains.
  10. Despite being a loss-making company, SNDL the aggregate compensation and benefits accrued or paid to the serving executive officers for services in all capacities was reported to be $7,570,683 for the fiscal year ended December 31, 2020.
  11. Sundial sold its Kamloops, British Columbia, property for $2.1 million in March 2020. It also shut down production in its Merritt, BC, facility, citing a lack of consumer demand. The company selling assets and shutting down production while other companies are growing is a huge red flag.
  12. The chart shows that there is a near-term resistance area for the stock.

#4 Future Fintech Group Inc. (NASDAQ: FTFT)

Company Info: Future FinTech Group Inc is engaged in financial technology business. The company engages in the operation of a blockchain based online shared shopping mall platform and also operates an incubator for application projects using blockchain technology. Future FinTech and its subsidiaries are developing blockchain technology for a variety of B2B and B2C real-life applications.

Website:  www.ftft.top

Last Close: $4.06

Reason for the hype: Chinese fintech industry’s accelerated  growth amid the COVID-19 pandemic; The acquisition of Sichuan Ticode Supply Chain Management Company; news about agreement to acquire a 51% stake in Mingtang Network Technology for $7 million and Nanjing Ribensi Electronic Technology Co, Ltd for $9.1 million; and signing of preliminary term sheet to acquire money transfer company Khyber Money Exchange Ltd for $0.82 million.

Latest 10-k report: (20-F) https://sec.report/Document/0001213900-21-021762/

Red Flags:

  1. The company has a history of name changes. The company was formerly known as SkyPeople Fruit Juice, Inc. and changed its name to Future FinTech Group Inc. in June 2017. SkyPeople Fruit Juice, Inc. was a producer of fruit juice concentrates, fruit juice beverages, and other fruit-related products. This is a radical business transition from selling fruit juices to blockchain e-commerce company and service provider for financial technology.
  2. The company has multiple ongoing legal cases. This includes legal cases with Beijing Bank, Ningxia Bank, China Construction Bank, Cinda Capital Financing Co. Ltd, Shaanxi Fangtian Decoration Co. Ltd, hanghai Pudong Development Bank, Shaanxi Fangyuan Construction Co., Ltd., Shaanxi Zhongkun Construction Co., Ltd., Xi’an Shanmei Food Co. Ltd., Nanjing Bailuotong Logistics Services Co., Ltd., Henan Huaxing Glass Co., Ltd., Huludao Banking Co. Ltd, and China Cinda Asset Management Co., Ltd. The company also has legal cases with Andrew Chien (former consultant of SkyPeople China), Luwei, Shaanxi Overseas Investment Development Corp., Shaanxi Wanyuan Construction Co., Ltd, FT Global Capital, Inc., as well as FT Global Litigation.
  3. The company had received notification letters from NASDAQ multiple times. On February 28, 2019, as well as on November 4, 2019, the notice was given under NASDAQ Marketplace Rule 5550(a)(2). On October 16, 2019, the notice stated that the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1). Such frequent notices increase the possibility of the company’s delisting from NASDAQ.
  4. China’s prohibition last year of a highly anticipated IPO by Ant could mark the onset of a heavy regulatory crackdown on the country’s burgeoning fintech industry. The China Banking and Insurance Regulatory Commission (CBIRC) announced last month that fintech companies are required to meet preset capital adequacy margins, and banks’ internet loans require a minimum capital contribution, in sync with domestic financial regulations. This could result in reduced profitability of fintech firms like FTFT.
  5. As per the annual report, the company’s loss from continuing operations increased by $42.53 million from $10.95 million in 2019 to $53.48 million in 2020 as the result of a decrease in revenue and an increase in bad debt and Impairment Loss. The Company also noted that it had incurred operating losses and had negative operating cash flows and may continue to incur operating losses and generate negative cash flows as the Company implements its future business plan.
  6. The company closed the registered direct offering of 5,737,706 shares of its common stock at a purchase price of $6.10 per share on April 6, 2021. The gross proceeds of this offering are approximately $35 million. More importantly, this is the fourth direct offerings in the last few months. Such frequent direct offerings could prove to have a dilutive effect on its shares.
  7. The bottom line remains that the company’s sub-par financials, stock’s premium valuation, and Chinese regulatory headwinds could significantly limit FTFT’s growth prospects in the near term.
  8. According to rumors, the company has a fake office in the US and unverifiable offices in China (address listed as 51st floor on a 32 story building). The company also had zero actual acquisitions from countless acquisition announcements made in the past year. Intrestingly, the new company to be acquisitioned, Nanjing Ribensi is said to literally translate as “Nanjing Kill Japan”.
  9. The bottom line is that FTFT does not have any actual holding, profits, BTC miners, or BTC technology, and has a lot of legal cases.
  10. Many investors followed the advice of Chris Sain and brought shares of FTFT. However, it is rumored that after telling everyone that FTFT was a definite buy, Chris Sain bought puts on FTFT before putting out a video telling followers to sell.
  11. The chart shows that there is a near-term resistance area for the stock.

#5 Humbl Inc. (OTCMKTS: HMBL)

Company Info: HUMBL is a new, Web 3 platform that seamlessly connects consumers and merchants with simple tools for the digital economy. HUMBL has three core divisions: HUMBL Mobile, HUMBL Marketplace, and HUMBL Financial, which will work together to optimize new technologies like blockchain and digital assets for global consumers.

Website:  https://www.humblpay.com/

Last Close: $1.40

Reason for the hype: The Launch of HUMBL Pay Mobile Application which seeks to compete with PayPal among others; the Launch of BLOCK Exchange Traded Index (ETX) Products in the United States; and announcement of Aurea Group Ventures Investment and Partnership for Exclusive Chile Country Rights.

Latest 10-k report: https://sec.report/otc/financial-report/278615

Red Flags:

  1. The company changed its name from Tesoro Enterprises, Inc. to HUMBL, Inc. as of February 26, 2021. Tesoro Enterprise was a construction material company and its business has absolutely no bearing on the current company. Tesoro Enterprises served as a vehicle for HUMBL, LLC to come public. This means that the company is just a few months old.
  2. Many companies including Tyler and Cameron Winklevoss have repeatedly attempted to launch their own cryptocurrency ETF, only to face SEC rejection. This could very well be the case for HMBL.
  3. The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
  4. The much-hyped HUMBL Pay Mobile app debuted as a bare-bones version.
  5. The app does not allow people to buy crypto directly. You need to first open a Coinbase Pro or Bittrex or Binance account, link it to HUMBL, and then deposit funds in those other accounts and then have those funds available to transfer into HUMBL to buy whatever ETX you choose.
  6. According to the annual report, Series B shares offered as part of the Reverse Split were finally revealed to be convertible at a 10,000 to 1 rate starting on December 3, 2021. This creates massive dilution for investors. The Series B shares were issued only AFTER the Reverse Split, so the power of these shares was made four times greater by being issued after the common shares were reduced to 25%. All of this information about the Series B shares was known by HUMBL management on February 26, 2021, but did not come to light until the Series 1 filing seven weeks later, despite two investor calls in that time frame that could have been used to communicate this information to shareholders. The bottomline is that the unrealized dilution is now impacting the value of existing public float.
  7. During 2020, the Company wrote off all of the net operating losses due to an ownership change. The Company had a net operating loss carryforward totaling approximately $992,381 on December 31, 2020.
  8. The chart shows that there is a near-term resistance area for the stock.

As you can see, there are quite a few red flags in these hyped penny stocks. We would advise investor caution before entering into such high-risk ventures. Remember to think before you trade!

Happy Trading!

— Trades of the Day Research Team