KushCo Holdings, Inc.
- Company Name
- KushCo Holdings, Inc.
- Stock Symbol
- Class Period
- July 13, 2017 to April 9, 2019
- Motion Deadline
- June 29, 2019
- Central District of California
The complaint charges KushCo and certain of its officers with violations of the Securities Exchange Act of 1934. KushCo primarily engages in the wholesale distribution of packaging supplies in the United States, Canada, Europe, and internationally. KushCo offers pop-top bottles; child resistant exit, paper exit, and foil barrier bags; tubes; and polystyrene, silicone-lined polystyrene or glass containers, as well as vaporizer cartridges, heating technologies, batteries, and hydrocarbon gases, including isobutene, n-butane, propane, ethanol, pre-mixes, custom blends, and other solvents.
In the past several years, KushCo has expanded its services through the acquisition of several companies in the cannabis industry. For example, in May 2017, KushCo acquired CMP Wellness LLC (“CMP Wellness”), a privately held manufacturer and distributor of Med-ePen brand vaporizer pens, cartridges, tanks, and accessories. Then, in May 2018, KushCo acquired Summit Innovations, LLC (“Summit”), a distributor of hydrocarbon products, such as propane and butane, to the legal cannabis industry. Finally, in July 2018, KushCo acquired The Hybrid Creative (“Hybrid”), a self-described premier creative agency for cannabis ventures, including branding, marketing, web, and strategy.
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements regarding the Company’s business and financial statements. Specifically, defendants made false and misleading statements and/or failed to disclose that KushCo had made material accounting errors in connection with its acquisitions of CMP Wellness, Summit, and Hybrid and, as a result, KushCo’s previously issued financial statements for the fiscal years ended August 31, 2018 and August 31, 2017 and the quarterly periods ended May 31, 2017, November 30, 2017, February 28, 2018, May 31, 2018 and November 30, 2018 could not be relied upon. As a result of this information being withheld from the market, KushCo securities traded at artificially inflated prices during the Class Period, with its stock price reaching a high of more than $8 per share.
Then on April 9, 2019, KushCo announced it would restate its financial statements for fiscal years 2017 and 2018 for non-cash items related to the acquisitions of CMP Wellness, Summit, and Hybrid. Specifically, the Company disclosed that it had inaccurately accounted for “certain shared-settled contingent consideration . . . relating to the Company’s acquisition of CMP Wellness in May 2017, Summit . . . in May 2018, and Hybrid . . . in July 2018. In connection with those acquisitions, [c]ontingent [c]consideration relating to the respective earnout arrangements were [sic] recorded as equity,” rather than as liabilities. As a result, the Company expected that the corrected misstatements would have an impact on its annual consolidated financial statements, including increasing the net loss for fiscal 2018 from $10.2 million to $24.3 million. On this news, the price of KushCo stock fell $0.45 per share, or nearly 8%, to close at $5.35 per share on April 10, 2019.