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In our earlier blog, Top 10 reasons why cannabis companies need accounting leadership – we outlined that cannabis companies need help in areas of governance and financial reporting. This point is now more relevant than ever because on October 10, the Canadian Securities Administrators (“CSA”), a national association of the provincial securities regulators, released the CSA Cannabis Report, which outline the results of a review of reporting issuers in the cannabis industry.
Today, the Zeifmans’ Cannabis Team will be reviewing the key observations made in the CSA Cannabis Report, outlining need for improvement in financial disclosures and outlining the top 3 things any current or future cannabis license producer (LP) needs to know.
Need for clarity:
Licensed cannabis LP’s often do not provide sufficient information in their financial statements and management’s discussion and analysis (MD&A) for an investor to understand their financial performance. International Financial Reporting Standards (“IFRS”) require issuers to record growing cannabis plants at their fair value. They say that 100% of the LPs they reviewed needed to improve their fair value and fair value related disclosures.
Need for compliance:
Some issuers do not consistently comply with securities requirements for forward-looking information, guidance for providing balanced disclosure and certain other requirements. In fact, 74% of issuers with cannabis operations in the US have not provided sufficient disclosure about the risks related to their US operations to satisfy the disclosure expectations set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities (the U.S. Disclosure Expectations Notice).
Need for disclosure:
In our earlier post, we outlined that often LP’s need help in order to get their fair value accounting for their agricultural assets right under IFRS guidance IAS 41: Agriculture. The challenge to follow IAS 41 for new producers in a new market are quite considerable. Zeifmans believes that the regulators can reasonably expect full disclosure of the assumptions made in those valuations. It seems like most LP’s are not meeting this expectation.
The CSA report goes on to provide further indications of what the regulators expect, including enhanced accounting policy disclosure, the disclosure of details of cannabis production costs and cost of cannabis sold in the subject reporting periods, and further disclosure of the fair value measurement process. For more details about the report, we recommend reviewing it, by clicking here.
Zeifmans Cannabis Team is available to help Canadian cannabis companies navigate their unique accounting landscape. If you have any questions about best practices in the business of cannabis, reach out to Larry Zeifman, Robert Grunwald and Jennifer Chasson, members of the Zeifmans Cannabis Team, today.
