Canadian cannabis company Cronos Group Inc. and a former executive at the firm are settling enforcement allegations with both the Ontario Securities Commission (OSC) and the U.S. Securities and Exchange Commission (SEC) in connection with accounting issues that led to several financial restatements.
Ontario’s Capital Markets Tribunal approved a settlement Monday between the OSC and Cronos and its former CFO, William Hilson, stemming from accounting issues that arose at the company. Those issues ultimately led Cronos to restate its financials for Q1, Q2 and Q3 in 2019, after the company improperly recognized $7.6 million in revenue, and again for Q2 2021 after it overstated its U.S. goodwill and intangible assets.
Under the OSC settlements, Cronos agreed to pay $1.3 million and $40,000 in costs, and Hilson agreed to pay a $50,000 penalty and $20,000 in costs.
Hilson was also banned from serving as an officer or director of a public company for one year, and the company agreed to hire an independent consultant to review and improve its accounting practices.
At the same time, the SEC also settled charges with Hilson and Cronos, which is listed on both the Nasdaq in the U.S. and the TSX in Canada.
The SEC settlement included the company agreeing to a cease and desist order, and a three-year officer and director ban for Hilson. However, the SEC said it didn’t impose a financial penalty on Hilson “in light of his consent” to pay the OSC penalty.
Cronos and Hilson settled the SEC’s charges without admitting or denying the regulator’s findings.
“The settlements announced today hold Cronos and Mr. Hilson accountable for their failures and serve as another excellent example of the OSC working across international borders to protect Ontario’s capital markets,” said Jeff Kehoe, director of enforcement at the OSC, in a release.
The regulators both noted that the firm cooperated with their investigations into the accounting misconduct, and the SEC said Cronos self-reported the issue.
Ontario’s tribunal also noted that Cronos discovered the accounting issues by acting on an internal complaint, and that Cronos also took voluntary steps to fix the weaknesses in its internal controls that allowed the issues to arise.
“As the industry continues to grow, it is imperative that investors receive accurate information about the financial performance of public cannabis companies to support informed investment decisions in this nascent sector,” Kehoe stated.
“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 as it came to light within the company, cooperating with our investigation, and promptly taking effective remedial steps,” said Mark Cave, associate director in the SEC’s enforcement division, in a release.