The chairman and chief executive of marijuana-growing equipment supplier GrowLife Inc. has stepped down following an SEC investigation that has hammered the company’s stock.
Sterling Scott, who joined the company in 2012 as part of a reverse merger, resigned from the Woodland Hills company effective immediately. The departure was announced late Thursday.
Marco Hegyi, the company’s president, will take over the top spot. He has previously worked in executive positions at Yahoo Inc. and Microsoft Corp.
The company has been rapidly expanding to gain market share as pot legalization gains traction and it used its stock as currency for everything from acquisitions to wages and rent on its corporate offices.
Trading was halted April 10 for two weeks by the Securities and Exchange Commission for what the agency called “potentially manipulative transactions.” At the time, shares were at 50 cents.
The company denied any wrongdoing and no actions were taken as a result of the investigation. However, investors have punished the stock since trading resumed April 24. Shares closed up 2 cents on Friday to 9 cents.
The stock decline has reduced the market cap from $404 million down to $73 million.
Despite buying multiple businesses, including in Colorado where pot use was recently legalized, the company has struggled financially. GrowLife reported an operating loss of $2.4 million in the first quarter, up about five fold from a year earlier, even as revenue grew from less than $1 million to about $2.4 million.
Last year, the company reported losses of more than $20 million, prompting it to issue a “going concern” statement over its ability to stay in business in its annual report.
The Financial Industry Regulatory Authority and SEC have 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 at least five other pot companies this year.
However, the company said the change in management would well position it as the marijuana growing industry experiences explosive growth.
“We have a strong dedicated board of directors, group of executives and retail team that are excited about and ready to forge ahead with GrowLife 2.0,” Hegyi said, in the press release.