Canadian Securities watchdog has released a crucial report showing that companies within the cannabis industry are not offering enough information in their financial information.
The regulator says it went through the disclosures of 70 publicly listed marijuana companies and uncovered that some of them often did not issue sufficient details in their financial reports for investors to grasp their performance.
“Licensed cannabis producers often did not provide sufficient information in their financial statements and management’s discussion and analysis for an investor to understand their financial performance. International Financial Reporting Standards (IFRS) require issuers to record growing cannabis plants at their fair value, “ the securities watchdog said in its report on Wednesday.
The regulator went on to say, “The cannabis industry has benefited from increasingly permissive legal frameworks and has grown significantly as an emerging public-market sector,” said the CSA, an umbrella group for provincial regulators. Our review identified industry-specific disclosure deficiencies, which are notable given the recent rapid growth of this industry.”
The regulators did not mention any company, though their review included reporting issuers with operations in different countries and varying levels of involvement in the industry.
The review comes only days before recreational marijuana legalization goes into effect throughout Canada. Cannabis stocks have also been on a run for the top in anticipation of strong demand for weed products after legalization.
CSA said that 74% of publicly listed cannabis companies with operations in the US did not provide enough information regarding related risks, as earlier requested.
The regulator noted that every licensed cannabis company reviewed ought to make improvements to their fair value-related disclosures. According to the CSA, all pot companies took action to improve their reporting when the regulator disclosed the deficient.
“Given the significant growth and interest in the cannabis industry, it is imperative that investors be provided with transparent information about issuers’ financial performance and risks related to their operations,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “Our review shows that the quality of disclosure in this area needs to be enhanced, and we encourage cannabis issuers to use this publication as a guide to make improvements.”
The number of publicly traded cannabis companies in Canada currently stands at more than 135. All have a combined market value of over C$60 billion (C$60 billion).
The country uses an International Financial Reporting Standard that favors the fair-value model used by its agricultural industry, which requires companies to place a value on their pot plants before they are even out of the ground.
Some individuals have previously criticized the current accounting practice for confusing investors. CSA plans to continue monitoring the companies, vowing to subject those that fail to provide appropriate information to additional regulatory actions.