Home Cannabis Canopy Growth under Investigation for Fraud

Canopy Growth under Investigation for Fraud

In recent news, Canopy Growth (CGC) (WEED) is under investigation of possible fraudulent claims. Law firm Ademi & O’Reilly is currently investigating fraud claims against the global cannabis producer. Ademi & O’Reilly specializes in shareholder litigation and securities fraud.

This investigation specifically focuses on 32 million Canadian dollars in return provisions, allowances for pricing, and restructuring charges in its second-quarter earnings.

What is the case?

The investigation is primarily based on whether Canopy Growth issued misleading statements. These statements include financials, business practices, and prospects of the company. In particular, the investigation would focus on the company’s information on softgels and oil products. These products were selling far below expectations.

In the recent earnings report, Canopy Growth claimed that its evaluation indicated an oversupply of softgels and oils. This oversupply has existed in some of its retail operations, which may be due to underdeveloped markets in some of the provinces.

When the company identified this risk, it developed new strategies for pricing and educating its customers. The company also believed the new strategies would improve the selling cycle for these products. However, the company determined 32 million Canadian dollars for returns and pricing adjustments based on the new assessment. This amount also reflects in the revenue, significantly reducing the revenue for the quarter.

Softgels and oils

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Softgel cannabis products are an oral form for cannabis medicine similar to capsules. Odorless and tasteless, softgel medicines are convenient to use, offering a consistent, pre-measured dosage. On the other hand, cannabis oils are most commonly found in a liquid state and are administered by a dropper. The dosage can be precisely tailored by the users. These are the two common methods of cannabis intake.

Canopy Growth reported revenue of 11.6 million Canadian dollars from softgels and oils. This constitutes only 6% of the company’s gross revenue. Further, the softgels and oils that were sold are estimated to contain 1,744 kilograms of cannabis or cannabis-related products.

Canopy Growth reported that demand for the softgels and oils did not meet the company’s forecasts. Currently, the company has reduced the production of recreational cannabis softgels and oils in order to bring balance to the supply and demand of these products.

Canopy Growth’s stock performance

Canopy Growth’s stock is currently trading at 20.31 Canadian dollars. The value of the stock fell by almost 17% after the company received its second-quarter results recently. The disappointing results reported by the company have already taken a toll on the stock’s value of the stock. Depending on the outcome of this investigation, the company’s stock might face a new low in the near future.

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