The stock kept its “Outperform” rating with investment bankers Raymond James on Tuesday but analyst Rahul Sarugaser is watching for next chapters in the story surrounding cannabis name Cronos Group (Cronos Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:CRON) after the company recently settled on an accounting misconduct charge.
Cronos Group, which is a Canadian licensed producer with a partnership with multi-national CPG company Altria, announced on Monday that it had reached a settlement with the US Securities and Exchange Commission (SEC) and the Ontario Securities Commission (OSC) on charges of accounting misconduct relating to a number of reporting periods relating to revenue recognition and goodwill impairment. Further charges on Cronos CCO William Hilson were that Hilson had entered into an oral agreement to sell cannabis raw material and repurchase cannabis product in the following quarter without the agreement being accounted for by Cronos, which found out about the $2.3 million accounting error through an internal investigation.
The SEC found that Cronos violated the antifraud, reporting, books and records and internal controls provisions of the federal securities laws and that Hilson had violated the antifraud provisions of the federal securities laws and “further aided and abetted and caused Cronos’s violations of the reporting, books and records, and internal controls provisions.”
The settlement sees Cronos not admitting nor denying the allegations and calls on Cronos to cease and desist from committing further violations. The SEC order said after discovering the accounting errors, Cronos “promptly reported the misconduct to the SEC and provided extensive cooperation that meaningfully advanced the Commission’s investigation. It also took effective remedial steps to enhance its internal accounting controls.” Cronos said it has agreed to pay C$1.34 million to the the OSC to settle.
“We are pleased to have resolved these matters,” said Mike Gorenstein, Chairman, President and CEO of Cronos, in a press release. “Important steps have been taken to strengthen our internal controls, and we are committed to continuing this work.”
For Sarugaser, his comment on the matter in a client update was, “We are monitoring any developments closely.”
Sarugaser is expecting Cronos to have 2022 revenue of $114 million and an EBITDA loss of $86 million and to generate 2023 revenue of $180 million and an EBITDA loss of $80 million.
Cronos’ share price has fallen a long way over the past year-and-a-half, with the stock losing about 74 per cent of its value since hitting highs in February, 2021. Year-to-date, CRON is down about 21 per cent.