The Securities and Exchange Commission (SEC) continues to investigate cannabis companies for possible enforcement actions related to investment fraud and market manipulation, with an increasing focus on Canadian companies. Most recently, Cronos Group, one of the largest cannabis producers in Canada, received an inquiry from the SEC related to its revenue recognition practices. As reported by MarketWatch, a Cronos company lawyer sent an e-mail to employees on March 10 instructing staff to retain certain records pertaining to a “confidential and non-public inquiry by the Securities and Exchange Commission.” The e-mail advised that the SEC’s Division of Enforcement has requested that Cronos Group retain and preserve all records about revenue recognition related to bulk-resin purchases and wholesale sales of biomass or other products. Documents related to the inquiry allegedly also require Cronos Group to preserve records that involve several public companies that Cronos has conducted business with, including, but not limited to, Medipharm Labs and Heritage Cannabis.
Cronos Group previously had disclosed in an SEC filing on March 2 that it was conducting an internal review into its accounting practices relating to purchases of marijuana extracts and wholesale revenue. As a result of that review, Cronos Group said on March 17 that it is reinstating unaudited interim financial results for the first three quarters of 2019. The company also disclosed that it would likely report “one or more” material weaknesses in its internal controls related to financial reporting.
Troutman Sanders’s experienced attorneys counsel and defend clients through all stages of securities enforcement proceedings. We represent clients in a broad cross-section of investigations by various government and regulatory bodies – including the SEC, the Financial Industry Regulatory Authority (FINRA), the U.S. Department of Justice, state securities regulators across the country, state attorneys general and other organizations. Members of our team – which include former senior attorneys from the SEC’s enforcement division – have represented clients in securities regulatory matters involving a wide range of issues, including market manipulation, broker sales practice violations, insider trading, accounting errors and irregularities, and a wide range of other securities fraud matters. We advocate for and defend clients through every stage of an investigation – from the informal inquiry, through the investigatory process, and (where applicable) the Wells process.
If you wish to discuss the SEC’s enforcement actions, or if you would like advice about other civil or criminal enforcement matters, please contact one of our partners listed in this communication.