Shares of GrowLife Inc. closed down nearly 60 percent on Friday after resuming trading following an April 10 halt by the Securities and Exchange Commission.
The Woodland Hills seller of marijuana growing supplies was issued a suspension order by the SEC for what it called “potentially manipulative transactions.” The stock traded for 50 cents on the OTC Bulletin Board at the time and closed Friday at 21 cents.
Chief Executive Sterling Scott issued a letter to stockholders on Thursday stating that the company was cleared of any wrongdoing.
“The SEC has informed GrowLife through counsel that it is not the subject of an informal or formal investigation. The SEC has not requested any documents from the company or its Board,” Scott said in the letter.
Scott added that the SEC suspension was prompted by concerns that some third-party holders of GrowLife stock may have been “planning to engage in some form of manipulative promotional activity,” though he provided no details. Separately, Scott announced that the company established a hotline and email communication system for shareholders.
The SEC has not issued a statement on the matter.
GrowLife has been rapidly expanding to gain market share as pot legalization gains traction and has paid for several acquisitions – and even wages and rent on its corporate offices – through its stock. At the same time, several insiders have sold off stock, including the chief executive and his estranged wife. Also, in February the board voted to triple the number of authorized shares to 3 billion.
“We have been actively developing a GrowLife 2.0 business model and go-forward strategy to propel the company, and the industry, forward. Details will be announced next week,” Scott wrote in the shareholder letter.
However, the company reported losses of more than $20 million last year, prompting it to issue a “going concern” statement over its ability to stay in business in its annual report released last month.
Also, the Financial Industry Regulatory Authority this year warned investors of “potential for fraud in this arena” and the “risks of investing in thinly traded companies about which little is known.” The SEC has halted trading in five other pot companies in the last several months.