Cannabis Musings - January 14, 2025
Acreage did a bad thing.
Friends – this isn’t legal advice, but always remember that the “e” in “e-mail” stands for “evidence” (I don’t know who came up with that amazing adage). In other words, if you’re going to do something wrong, such as perpetrating a fraud, don’t put it in writing (see, also, The Simpsons, Episode 18S9E18).
U.S.-based MSO Acreage Holdings (and, finally, as of last December, the wholly-owned subsidiary of Canadian LP Canopy Growth) allegedly forgot this wise gleichvertel (“saying”), according to a settlement announced by the U.S. Securities and Exchange Commission on Monday. As has been widely reported, Acreage apparently violated U.S. securities laws by creating “false records regarding a transfer of approximately $4 million that was temporarily moved into the company’s bank account a few days before the end of Acreage’s 2019 fiscal year.”
The SEC’s order details what happened, which is worth reading, but, in short, Acreage apparently borrowed about $4mm from an affiliate right before December 31, knowing that it was going to return that money to the affiliate right after New Year’s Day, so that Acreage could show a better cash position on its year-end financials (which are publicly reported, hence why the SEC cared). This schtick is affectionately known in accounting as a “round-trip” of cash and it’s very much frowned upon if you report the income (the cash coming in) on your financials, but don’t report the corresponding obligation to send the money back in a few days.
Generally, when one entity owns at least 50% of the equity of another, you include the latter entity’s financial information on your own financial statements, as if it were your own. Due to some unstated fact pattern, Acreage had enough equity/control connection to the other entity to still call it an “affiliate” and get it to send Acreage $4 million for a few day, but Acreage didn’t have to consolidate the other entity’s financials.
What really got Acreage into trouble was not only that its own employees were befuddled about how and whether to report this cash, which resulted in whistleblower calls to Acreage’s internal compliance hotline, and not only misstating on its financials and to its auditor the nature of this temporary windfall I’m guessing it was also this voicemail from an Acreage officer to someone in the other entity’s accounting department:
“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.”
Oy gevalt. Again, this isn’t legal advice, but the moral of this story is that, if you’re going to commit securities fraud or any other sort of shenanigans, don’t put it in writing or leave it in voicemail. Everything is discoverable.
What’s truly delightful about the settlement order is that, while Acreage doesn’t admit or deny the facts in the SEC’s settlement order, because that’s the way these things usually work, Acreage agreed to pay a $225,000 fine and “cease and desist” from violating securities reporting laws in the future. In other words, “we agree we won’t break the law in the future, which we’re not supposed to do anyway.” I’d like to think someone at the SEC has a sense of humor.
To me, the true punishment will be defending the stockholder class action suit that’s almost certainly going to be filed by a chutzpeh plaintiff’s lawyer claiming that society has fallen because Acreage falsely disclosed its financial position to the public to the tune of about $4mm. As our Muse, Bloomberg’s Matt Levine, frequently says in his Money Stuff newsletter, “everything is securities fraud.”
As a reminder, don’t miss my appearance on Big Ideas in Cannabis Episode #3, a podcast series from Beard Bros Pharms and hosted by Cassie Tomaselli of Tomaselli Media. Access it here.
Be seeing you.
===
Upgrade now to Paid ($5 per month - Cheap!) and get your questions answered by the Law-Talking Guy!
© 2025 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.