Acreage Holdings Inc., a multi-state cannabis operator recently acquired by Canadian cannabis giant Canopy Growth, has agreed to pay $225,000 to settle administrative claims from the U.S. Securities and Exchange Commission (SEC) regarding a $4.2 million round-trip transaction aimed at inflating its reported cash balance.

The SEC alleged that in December 2019 and January 2020, Acreage orchestrated a transfer of cash to and from an affiliated entity, inflating its year-end cash balance for internal accounting purposes. The SEC stated that the company arranged the transaction with the explicit understanding that the money would be returned after the fiscal year concluded.

According to the SEC, Acreage falsely recorded the round-trip transaction in its accounting records, initially labeling it as a debt repayment and later as a short-term loan. The company eventually reversed the transaction after internal concerns were raised. Acreage also misrepresented the cash transfers to its external auditor.

The SEC's order resolves the agency’s claims of violations related to the federal Securities Exchange Act's recordkeeping provisions. Acreage consented to the order without admitting or denying the allegations, and the company has pledged to cooperate in any future investigations or proceedings related to the matter.

This settlement comes after Acreage faced scrutiny over its financial records as it prepared to wrap up its 2019 fiscal year. The company had been concerned about its cash balance, especially as cannabis industry analysts focused on this metric. According to SEC filings, Acreage officials had expressed concern over the company’s position compared to its competitors, prompting them to ask the affiliated entity for a temporary cash transfer instead of paying down an existing line of credit.

The SEC also noted that Acreage had a long-standing relationship with the affiliate, providing management services and financial oversight. The transaction, which took place around the year's end, was mischaracterized in Acreage's accounting documents, and was later flagged by employees, including a compliance hotline complaint.

Acreage is represented by Cozen O'Connor's Joseph Dever, while the SEC's case is led by Kiran Patel, Nandy Celamy, Russel Feldman, and George N. Stepaniuk.