Acreage Holdings Settles SEC Allegations for $225,000 Over Inflated Cash Balances

A cannabis company has agreed to pay $225,000 to resolve allegations that it temporarily inflated its year-end cash balances by improperly depositing funds, as reported by the Securities and Exchange Commission (SEC). The SEC, which aims to protect investors, emphasizes the necessity for companies to accurately report their cash positions, as misleading information can violate agency regulations.

Acreage Holdings, established in Canada in 2011 and headquartered in New York, was recently acquired by Canopy USA, a subsidiary of Canopy Growth Corporation. According to the SEC’s order released on Friday, Acreage's senior management grew concerned in late 2019 about the company’s cash balance of approximately $26.5 million, feeling it was weaker than desired.

To address this issue, Acreage allegedly engaged in a “round-trip” transfer of funds by arranging for an unnamed third party to deposit $4.2 million into its account on December 26, 2019, with plans to return the funds by January 3, 2020. The alleged scheme involved at least three company officers, one of whom instructed an employee to execute the transfer and categorize it as “short-term financing.”

The intent behind this action was to inflate Acreage’s FY2019 cash balance by $4.2 million, according to the SEC. Despite the employee's reservations and the third party's CEO's hesitations, the Acreage officer pushed for the transfer to proceed. The SEC claimed one officer left a voicemail stating, “They’re gonna wire approximately $4.5 million to the Acreage account just to show cash in our account, then we’re gonna put it back, but he needs to know what are [sic] outstanding as far as payables so we leave sufficient funds in there so no checks bounce.”

On the eve of the funds' return, the third party's CEO sent an email to Acreage officers seeking assurance that the money would be “coming back … today or tomorrow,” the SEC alleged. Following the round-trip transfer, Acreage's accounting staff reportedly struggled to accurately categorize the transaction, initially labeling the funds as a repayment of debt from the third party before later changing the entry to a loan. “Both characterizations misrepresented the true nature of the transfers,” the SEC stated.

In January 2020, concerns regarding the questionable transaction were raised by Acreage employees, and an anonymous complaint was filed through the company’s compliance hotline. These concerns were escalated to a board member, who reportedly questioned another board member involved in the transfer. After the inquiries, the records were modified again to effectively reverse the transfer, leading to the funds not being publicly reported in Acreage’s FY2019 financial statements, the SEC alleged.

In a further misstep, Acreage allegedly created documents intended to mislead the external firm conducting its annual audit by misrepresenting and omitting crucial facts about the round-trip transfer, according to the SEC. The company failed to maintain accurate books, records, and accounts reflecting the transactions and dispositions of its assets as mandated by the Exchange Act, the SEC claimed.

In addition to the financial penalty, Acreage has committed to fully cooperating with any ongoing investigations. The company did not immediately respond to requests for comment.

By fLEXI tEAM