{"id":86,"date":"2020-01-10T06:00:27","date_gmt":"2020-01-10T11:00:27","guid":{"rendered":"https:\/\/www.ifg-global.com\/blog\/?p=86"},"modified":"2020-01-09T14:57:46","modified_gmt":"2020-01-09T19:57:46","slug":"high-demand-for-cannabis-the-wild-west-for-financial-professionals","status":"publish","type":"post","link":"https:\/\/www.ifg-global.com\/blog\/high-demand-for-cannabis-the-wild-west-for-financial-professionals\/","title":{"rendered":"High Demand for Cannabis: The Wild West for Financial Professionals"},"content":{"rendered":"\n

Although many consumers and investors were excited about\nthe Canadian legalization of cannabis in October 2018, the entry of cannabis\ninto the market has been anything but smooth.<\/p>\n\n\n\n

While challenges are expected in any new market, the\nindustry has suffered serious growing pains in everything from logistical\nissues to financial reporting. According\nto an article in BNN Bloomberg<\/a>, nearly $1-billion worth of\nlegal cannabis was sold in Canada during the first year of legalization.<\/p>\n\n\n\n

While initial sales forecasts were higher and implied that\nthe majority of purchases would be made legally, early Statistics\nCanada data shows that the non-legal market accounted for 70 to 80 percent of\nall cannabis sales during the first year of legalization<\/a>. <\/p>\n\n\n\n

The introduction of cannabis into the Canadian market\noffers new opportunities for some but the resulting financial and regulatory\nimplications can be a nightmare for financial professionals. Financial\nreporting watchdogs in Ontario, British Columbia, Alberta and Quebec found that\n100 percent of 21 licensed cannabis producers (among a group of 70 industry\noperators reviewed) needed to improve their \u201cfair value and fair value related\ndisclosures.\u201d<\/a> They found that licensed producers did not\nprovide sufficient information in their financial statements and MD&A for\nan investor to fully understand their financial performance.<\/p>\n\n\n\n

In an\narticle in Maclean\u2019s<\/em> magazine,\nforensic accountant Al Rosen says that the financial statements of Canada\u2019s\npublicly traded licensed producers are a \u201cbloody mess.\u201d<\/a> <\/p>\n\n\n\n

Uncertainties in financial and regulatory reporting are\nboth a curse and a blessing for financial professionals. The lack of experience\nof many \u201ccannapreneurs\u201d offers numerous opportunities for accountants and\nbookkeepers to provide financial guidance. To prepare for the growth of the\nindustry, many entrepreneurs need to be designing long term sustainable\nfinancial models and strategic plans to enable them to reach their full\npotential. <\/p>\n\n\n\n

Tax\nand regulatory rules are still evolving and in many ways the industry still\nreflects a \u201cgold rush\u201d mentality<\/a>. Cannabis companies will need\nto develop appropriate tax and accounting structures for both national and\ninternational expansion.<\/p>\n\n\n\n

Compliance\nis another evolving area where professional advice can mean the difference\nbetween success and failure. Issues surrounding compliance will continue to\ngrow even more as edibles now enter the market. <\/p>\n\n\n\n

To\nexplore options involving the application of accounting and auditing standards\nto cannabis, CPA\nCanada has created a task force to discuss issues in this new industry<\/a>.<\/p>\n\n\n\n

Faced with increased demand from consumers and investors\nfor more industry information, the organization feels that Canada is in a\nposition to help shape reporting and auditing practices. <\/p>\n\n\n\n

One of the key challenges accountants face is that for the\nfirst time in Canada, many public companies are required to apply the IFRS\n(International Financial Reporting Standards) agriculture standard. Although\nmany current agricultural businesses in Canada are private and are not required\nto apply IFRS, most cannabis companies are public as they had to raise money to\nbegin operations.<\/p>\n\n\n\n

The\ncannabis industry is governed by International Accounting Standard (IAS) 41(Agriculture)\nwhich outlines how financial information is disclosed related to agricultural\nactivity. A lack of guidance in how to apply<\/em>\nthe standard leads to a lack of consistency in practice.<\/a><\/p>\n\n\n\n

Another issue arising from industry growth includes the financial\nand operational challenges of doing business outside of Canada. In the U.S.,\ncannabis is illegal at the federal level but legal in some states. It\u2019s not\nhard to visualize the resulting impact on banking, taxation and other legal\nissues in considering business with the U.S. <\/p>\n\n\n\n

While Canada\u2019s growing cannabis market offers a wealth of\nopportunities for seasoned and informed financial professionals, there are\nstill numerous challenges including rules that have yet to be written. As the\nindustry evolves and is set to disrupt others, investors will look for\ncompanies that adhere to financial and regulatory guidelines forcing others to\nfollow suit. For now, the initial investor frenzy seems to have levelled off as\nthey strive for more informed investment decisions and watch how the industry\nplays itself out.<\/p>\n","protected":false},"excerpt":{"rendered":"

Although many consumers and investors were excited about the Canadian legalization of cannabis in October 2018, the entry of cannabis into the market has been anything but smooth. While challenges are expected in any new market, the industry has suffered serious growing pains in everything from logistical issues to financial reporting. 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