Cannabis Watch: SEC makes second move in a week against a once-hyped pot-stock’s former executive

by | Oct 24, 2022 | Stock Market

The Securities and Exchange Commission on Monday charged Canadian pot producer Cronos Group Inc. and a former executive with accounting fraud, accusing them of improperly booking sales and overstating revenue by millions of dollars. Cronos Group

and its former chief commerce officer — William Hilson, who left the company at the end of 2019 — agreed to settle the matter without admitting or denying the SEC’s findings, the agency said. Shares of the company fell 2.4% after hours.

The move by the regulator marks the second time in a week that it has filed charges related to a company that was swept up in a pot-stocks craze around the time that Canada became the first industrialized nation to legalize marijuana for recreational purposes. And it follows questions surrounding Cronos’s accounting protocols that cropped up more than two years ago. Cronos and Hilson also settled similar allegations from Canadian regulators. See also: Former CEO of NewAge, a drink company that shot to pot-stock fame, accused by SEC of ‘multiyear fraud’ Cronos Chief Executive Mike Gorenstein, in a statement, said he was “pleased to have resolved these matters.” Tobacco giant Altria Group Inc.
— which owns more than 40% of Cronos and is its biggest shareholder — referred inquiries to Cronos. The SEC alleged that across three quarters between 2019 and 2021, Cronos “submitted financial statements with the SEC that contained material accounting errors related to, among other things, revenue recognition and goodwill impairment.” The agency also found that Hilson, in one of those quarters, made an oral agreement to sell “cannabis raw material and to repurchase cannabis product in the following quarter” — a $2.3 million oversight that “was neither known nor accounted for by Cronos.” However, the SEC said, Cronos quickly reported the alleged misconduct — the company restated its 2019 financial information in early 2020 after delaying its annual review for an internal inquiry. And the company cooperated with the agency’s investigation — which was first reported by MarketWatch — and took steps to improve its accounting protocols, the SEC said. For more: Cronos paid $300 million for a small CBD company, and CEO’s private-equity firm stands to collect $120 million of it “While today’s order finds that Cronos’s controls were not up to standards when it began filing financial statements with the SEC, Cronos avoided penalties by promptly self-reporting its accounting misconduct …

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