According to the Complaint, 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. KushCo also provides vaporizer cartridges, heating technologies, batteries, and disposable units; 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, operational and compliance policies. Specifically, the Complaint alleges Defendants made false and/or misleading statements and/or failed to disclose that: (i) KushCo made material accounting errors in connection with its acquisitions of CMP Wellness, Summit, and Hybrid; (ii) as a result, KushCo’s previously issued financial statements as of and for the fiscal years ended August 31, 2018 and August 31, 2017, included in the Company’s Annual Reports on Form 10-K for such periods, and financial statements as of and for the quarterly periods ended May 31, 2017, November 30, 2017, February 28, 2018, May 31, 2018 and November 30, 2018, included in the Company’s Quarterly Reports on Form 10-Q for such periods, could not be relied upon; (iii) KushCo’s net loss for the fiscal year ended August 31, 2018, was more than twice as high than previously reported; (iv) KushCo and its management’s assurances that its financial statements for those fiscal years and periods were accurate and fairly reported could not be relied upon; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.