Marijuana sector’s books more like ‘audited hallucinations’ than financial statements, accountants say

financialpost.com | January 26th, 2018

By Bloomberg News
Kristine Owram

Financial statements from marijuana producers can look strikingly rosy, with a quirk of accounting regularly leading to gross margins of more than 100 per cent. But a closer look reveals a mishmash of management assumptions that could deflate those margins if the bud sells for less than estimated — or gets attacked by mold.

In Canada, where 84 listed marijuana stocks have surged to a value of about $36.9 billion ahead of recreational legalization in July, companies abide by International Financial Reporting Standards. The guidelines favour a fair-value model used by the agricultural industry, which requires companies to place a value on plants while they’re still in the ground.

That’s akin to counting your chickens before they’re hatched, leaving companies open to big write-offs and investors groping for financial clarity. It’s all crying out for more guidance and standardization from the country’s regulators, industry observers say.

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