Cronos Pays OSC $1.3 Million As Penalty For Accounting Fraud, Settles SEC Charges

A Capital Markets Tribunal panel yesterday accepted a settlement agreement between the Ontario Securities Commission and Cronos Group Inc (TSX: CRON) over accounting errors that resulted in two restatements of its interim financial statements.

The Canadian cannabis company paid a $1.3 million administrative penalty and an additional $40,000 towards the cost of the OSC’s investigation. Cronos has already paid such sums prior to the hearing.

Also part of the agreement, the firm will subject to a review of policies and processes, including Cronos’s compliance with obligations relating to internal controls over financial reporting, by an independent consultant acceptable to the Commission.

Cronos incorrectly recognized $7.6 million in revenue from three wholesale cannabis transactions in its Q1, Q2, and Q3 2019 interim financial statements. In its Q2 2021 interim financial statements, the company additionally inflated practically all of its US goodwill and a major percentage of its US intangible assets by a total of $234.9 million. As a result of these accounting errors, the firm revised its interim financial statements for the first, second, and third quarters of 2019, as well as its interim financial statements for the second quarter of 2021. Cronos revealed material flaws in internal control over financial reporting in both cases (ICFR).

William Hilson, Cronos’ former Chief Financial Officer and Chief Commercial Officer, was involved in one of the wholesale transactions in which Cronos overstated revenue by $3 million. In settling this dispute, Hilson agrees that he did not take the necessary steps to address Cronos’ management of revenue recognition difficulties for this transaction, and that his actions were detrimental to the public interest.

As part of the settlements, Hilson made a voluntary payment in the amount of $50,000 to the OSC plus $20,000 for the commission’s investigation costs. He will also be barred from serving as a director or officer of any reporting issuer for a year.

The OSC said it acknowledges the help extended by the US Securities and Exchange Commission, which also settled its own charges against Cronos and Hilson.

The settlement with SEC compels the firm to refrain from committing or causing any future violations of certain provisions of the United States federal securities laws. Cronos also committed to certain undertakings, including appointing a qualified independent consultant.

“We are pleased to have resolved these matters,” said CEO Mike Gorenstein. “Important steps have been taken to strengthen our internal controls, and we are committed to continuing this work.”

“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,” said Jeff Kehoe, Director of Enforcement at the OSC. “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.

Cronos last traded at $4.23 on the TSX.


Information for this briefing was found via the OSC and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

2026 Could Be Gold’s Biggest Year Yet!? | Ryan King – Equinox Gold

Gold Is Screaming Higher While Currencies Burn | Simon Ridgway – Rackla Metals

We Have the Highest-Grade Antimony Deposit in North America!? | Jim Atkinson -Antimony Resources

Recommended

Canadian Copper Secures $8 Million Lead Order From Ocean Partners As Part Of Larger Funding Round

Northern Superior Expands Philibert With 350 Metre Step Out Testing 1.10 g/t Gold Over 25.5 Metres

Related News

Cronos Group Posts Another Gross Loss For Q2, Replaces CFO

Cronos Group (TSX: CRON) (NASDAQ: CRON) this morning reported their second quarter financial results. Revenues...

Friday, August 6, 2021, 08:34:51 AM

Cronos Group Receives Delinquency Letter From Nasdaq

Cronos Group (TSX: CRON) on Friday after hours provided a bi-weekly management cease trade update...

Monday, November 22, 2021, 08:52:45 AM

Medipharm Labs and Cronos Group Sign Second Manufacturing Agreement

Medipharm Labs (TSX: LABS) and Cronos Group (TSX: CRON) (NASDAQ: CRON) have entered into their...

Thursday, September 19, 2019, 09:23:17 AM

Cronos Group Announces 10.5% Investment Into US Operator PharmaCann

It appears that rules pertaining to ownership of US cannabis operations are loosening at the...

Monday, June 14, 2021, 08:06:24 AM

Is The Medipharm Labs Supply Arrangement The Source Of Cronos’ Late Filings?

Earlier this week, Cronos Group (TSX: CRON) (NASDAQ: CRON) quietly announced that they would delay...

Wednesday, March 4, 2020, 12:12:37 PM