The Securities and Exchange Commission is conducting a “confidential and non-public inquiry” into Canadian cannabis company Cronos Group Inc., according to internal company documents outlined by MarketWatch. The U.S. regulation agency is requesting the company retain records related to the bulk purchase of resin and other records related to how it recognizes certain revenue.
The documents say that the SEC has ordered Cronos to preserve records dating back to July 1, 2019 related to specific transactions, negotiations, and other dealings with Canadian extracting company MediPharm Labs Corp., TerrAscend Corp. (which operates dispensaries in the U.S.), Canadian licensed producer Heritage Cannabis Holdings Corp., and 48North Cannabis Corp., along with subsidiaries of those companies.
Due to the review, Cronos sad last week that it would have to reissue three-quarters of financial statements for 2019 and will report C$2.5 million (US$1.74 million) in reduced revenue for the first quarter and C$5.1 million (US$3.55 million) for the third quarter, the report says. The company also said that it would likely report “one or more” material weaknesses in its internal controls related to its financial reporting.
None of the companies named in the report commented about the inquiry. The SEC also declined to provide comment.
The SEC has launched and completed several investigations into cannabis companies, including a 2017 investigation into a shell company scheme by cannabis vending machine company MedBox, which led to a $12 million settlement and an order barring company founder Vincent Mehdizadeh from serving as a director or officer of a publicly-traded company or participating in penny stock offerings. In 2018 the agency charged Texas-based Greenview Investment Partners and founder Michael Cone with defrauding investors out of $3.3 million.
Last year, the SEC fined Colorado businessman and author Jeffery Friedland $4.1 million on allegations that he misled investors about Israeli cannabis company OWC Pharmaceutical Research. In February, the agency filed a complaint against Robert Russell and his partner, Guy Scott Griffithe, owners now defunct Green Acre Farms in Washington state, accusing them of defrauding investors out of $4.85 million.
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