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Efforts to remedy periodic reporting violations and credible assurances of future compliance have saved a cannabis cultivator from being stripped of its securities registration.

In a decision that evidences the US Securities and Exchange Commission’s (SEC) willingness to extend an olive branch in cases where a company has taken strong remedial action in the wake of breached reporting obligations, Oregon-based cannabis cultivator Grown Rogue International has been let off the hook for failing to file any periodic reports over a three-year period, escaping revocation of its securities registration.

The reverse merger

Grown Rogue International – a self-proclaimed “flower-forward cannabis company” offering terpene-rich flower, pre-rolled joints, live resin vapes and all-in-one devices – is the product of a 2018 reverse-takeover transaction between Novicius Corporation and Grown Rogue Unlimited. The reverse merger saw Novicius alter its corporate structure and change its name to Grown Rogue International.

All was well in 2018. Novicius had filed its annual report on Form 20-F for the fiscal year ending August 2018, continuing a clean track record of compliance with reporting requirements initiated by Eugenic Corporation, Rogue International’s original corporate predecessor that had registered its class of securities in 2009.

The reverse merger shifted the scene. As a result of the deal, Grown Rogue was required to file a Shell Company Report on Form 20-F within four business days. It failed to comply. The report was eventually filed almost four years later, in June 2022.

When the SEC filed an order instituting proceedings (OIP) under section 12(j) of the Securities Exchange Act of 1934 against Grown Rogue in September 2022, the company had not produced any periodic reports for fiscal years 2019, 2020 and 2021.

All in good time

In its answer to the SEC’s OIP, Grown Rogue admitted it had breached its reporting obligations. The company claimed that it had “mistakenly failed to file a Form 15F after its reverse takeover” and later learned that, while its 2017 and 2018 financial statements had been audited under Canadian Auditing Standards, they needed to be reaudited under US Public Company Accounting Board (PCAOB) standards. It told the SEC it was “working diligently” to prepare its delinquent reports and audited financial statements.

Grown Rogue further pledged to submit its missing documents within a fortnight of its answer. It did so five days later, filing its outstanding periodic reports in November 2022.

Since then, Grown Rogue has filed its annual reports for its 2022, 2023, 2024 and 2025 fiscal years and a quarterly report for the first quarter of its 2026 fiscal year.

In June 2023, the SEC’s Division of Enforcement moved for summary disposition, contending that the appropriate remedy was revocation of its securities registration. Earlier this month, the Division conceded that it “would not oppose the Commission’s dismissal of this matter” in light of Grown Rogue’s three-year compliance record.

SEC response

The SEC concluded that Grown Rogue had violated section 13(a) of the Exchange Act and the Exchange Act Rule 13-a1. Its next step was to determine whether suspension or revocation of registration was appropriate under the legislation.

Applying the multifactor test in Gateway International Holdings – which requires consideration of the seriousness of the violations, the degree of culpability involved, the company’s efforts to remedy past violations and ensure future compliance, and the credibility of its assurances against future breaches – the regulator held neither remedy was appropriate.

The SEC noted that it had long held that repeated failures to file timely periodic report is “so serious” a violation of the Exchange Act that only a “strongly compelling showing” regarding the other Gateway factors could see a company escape revocation.

Grown Rogue succeeded in proving exactly that. The regulator gave weight to the fact to the Division’s change-of-heart and the fact it had not alleged that any of the company’s annual reports over the past three years contained material deficiencies.

The SEC further found that the company had provided credible assurances that future violations would not occur. Grown Rogue asserted that its prior failings were not the result of financial distress, and that it has adequate financial resources to meet its continued obligations.

While the regulator considered the specific reasons for the company’s past failures to be “somewhat unclear”, it accepted that the assurances were credible, given that “Grown Rogue met its self-imposed deadline to file its delinquent reports and, since the OIP, has filed its annual reports for more than three years”.

Turning to the necessity to consider investor harm, the SEC stressed that it must consider the impact on “both current and prospective shareholders” and the fact that “an issuer’s failure to timely file periodic reports harms both groups of shareholders”. Weighing those interests, it held that revocation was not a necessary or appropriate step to protect investors.

The SEC therefore denied the Division’s motion for summary disposition and dismissed the proceedings.

SEC drops case as cannabis company turns over new leaf