GrowGeneration Restate’s Financials After Accumulation of Errors
Misstatements reduce net income by a half million dollars.
March 30, 2021
Grow Nation (GRWG), a hydroponic gardening company, revealed in the footnotes of its most recent annual report that a series of errors has resulted in the restatement of some of its financials. In its 2020 10-K, Grown Generation disclosed it is restating amounts presented in the company’s inventory and cost of sales in prior years:

“The revised amounts resulted from an accumulation of errors related to rebates issued from vendors. We determined these errors accumulated in 2019 and prior years.”

Though GrowGeneration says the revisions had no material impact on income from operations, net income, or cash flows, the company’s revised balance sheet shows a reduction of $1.08 million in assets. On its revised income statement, GrowGeneration recorded a $556,962 million reduction in gross profit. Net income has been revised down to $1.3 million from $1.8 million.

The company also stated:

“Retained earnings as of January 1, 2019, was also revised to reflect the impact of the error on prior periods. The impact of the error for periods prior 2019 was $525,786.”

Investors should not be surprised by additional revisions. The company has made at least eight acquisitions in the first quarter of 2021 for which the initial accounting for the new business combinations has not yet been completed.

Not surprisingly, GrowGeneration also disclosed material weaknesses in its internal controls over financial reporting. Specifically, GrowGeneration disclosed it lacks adequate resources in its accounting and financial reporting departments to handle warrant compensation, share based compensation, and accounting for rebates. The company also disclosed user access issues related to its information technology (IT) systems:

“Deficiencies in control activities contributed to material accounting errors identified and corrected through 2020 and prior years. These design deficiencies in control activities contributed to the potential for there to have been material accounting errors in multiple financial statement account balances and disclosures.”
Related: GRNH, SMG
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