8-K: Schwazze to Transition to OTC Expert Market Due to Delayed SEC Filing

Medicine Man Technologies, Inc., operating as Schwazze, will transition its common stock to the OTC Expert Market due to a delayed quarterly filing caused by issues with its previous auditor.

Summary

• Medicine Man Technologies, Inc., known as Schwazze, is moving from the OTCQX to the OTC Expert Market because it failed to file its quarterly report (Form 10-Q) by the May 15, 2024 deadline.
• The delay is due to an SEC investigation and order related to the company's former auditor, BF Borgers CPA PC.
• Schwazze dismissed BF Borgers on April 8, 2024, and hired Baker Tilly US, LLP as its new auditor.
• The SEC issued an order against BF Borgers on May 3, 2024, citing widespread failures to comply with accounting standards.
• Baker Tilly is now re-auditing Schwazze's 2023 financials and re-reviewing the 2022 balance sheet, delaying the filing of the Q1 2024 report.
• The OTC Expert Market only allows unsolicited quotes, meaning broker-dealers can only publish quotes representing limit orders from non-affiliate investors.
• Schwazze intends to regain compliance with SEC reporting and apply to relist on the OTCQX once the re-audits are complete.
• The company is also seeking a management cease trade order (MCTO) from the Ontario Securities Commission due to the missed filing deadline.

Sentiment

Score: 3

Explanation: The document highlights significant issues with the company's financial reporting and a downgrade in its trading market, leading to a negative sentiment.

Positives

• The company proactively dismissed BF Borgers as its auditor before the SEC order, which is seen as a strategic move to improve accounting rigor.
• Schwazze is actively working with Baker Tilly to complete the re-audit process and become current with SEC reporting.
• The company intends to pursue recoveries for all fees related to BF Borgers.
• The company is communicating with the Ontario Securities Commission to obtain a management cease trade order (MCTO) to allow the general public to continue trading the stock.

Negatives

• The company's stock will be moved to the OTC Expert Market, which limits trading to unsolicited quotes.
• The company is not current with its SEC reporting obligations, specifically the Form 10-Q for the period ended March 31, 2024.
• The delay is due to an SEC investigation and order related to the company's former auditor, BF Borgers CPA PC.
• The company's new auditor needs additional time to complete its prior period review before the company files its quarterly report.

Risks

• The transition to the OTC Expert Market could negatively impact the company's stock price and liquidity.
• The re-audit process may take longer than expected, further delaying the company's return to compliance.
• The company may face additional regulatory scrutiny due to the issues with its previous auditor.
• There is a risk that the company may not be able to relist on the OTCQX if it does not meet the requirements.
• The company's ability to access capital may be affected by the current situation.

Future Outlook

The company intends to complete the necessary work to be current in its reporting obligations with the SEC in the coming months and apply for relisting on the OTCQX once it becomes compliant.

Management Comments

• Our decision to dismiss BF Borgers as our auditor was a strategic move to bolster our accounting rigor and it proved to be the right decision given the SEC's subsequent charges on BF Borgers, said Forrest Hoffmaster, Interim CEO of Schwazze.
• Although our OTC listing was affected by BF Borgers actions, we are diligently working with our new auditor to complete the re-audit process in an efficient and timely manner.
• We are also pursuing recoveries for all fees related to BF Borgers.

Industry Context

The situation highlights the importance of auditor independence and the potential impact of accounting irregularities on publicly traded companies. The SEC's action against BF Borgers has had a ripple effect, impacting numerous companies and their ability to meet reporting deadlines.

Comparison to Industry Standards

• The delay in filing the quarterly report is a significant deviation from industry standards for publicly traded companies.
• Companies like Curaleaf Holdings, Trulieve Cannabis Corp, and Green Thumb Industries, which are also in the cannabis sector, have consistently met their reporting deadlines.
• The SEC's action against BF Borgers is unusual and has created a unique situation for the companies that used their services, making direct comparisons difficult.
• The re-audit process is a necessary step to ensure the accuracy of financial statements, but it is also a time-consuming and costly process that can negatively impact investor confidence.

Stakeholder Impact

• Shareholders will experience a negative impact due to the stock's transition to the OTC Expert Market and the potential for decreased liquidity.
• Employees may be concerned about the company's financial stability and future prospects.
• Customers and suppliers may experience uncertainty due to the company's reporting issues.
• Creditors may be concerned about the company's ability to meet its financial obligations.

Next Steps

• The company will work with Baker Tilly to complete the re-audit of its 2023 financials and re-review of the 2022 balance sheet.
• The company will file its delayed Form 10-Q for the period ended March 31, 2024.
• The company will apply to relist on the OTCQX once it is compliant with SEC reporting.
• The company will seek a management cease trade order (MCTO) from the Ontario Securities Commission.

Key Dates

Keywords

OTC Expert Market, SEC Filing, Auditor, BF Borgers, Baker Tilly, Re-audit, OTCQX, Management Cease Trade Order, SEC Investigation, Financial Reporting