Pot firms have ‘deficiencies’ in disclosures to investors: securities regulators

Pot firms have ‘deficiencies’ in disclosures to investors: securities regulators
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TORONTO — Cannabis industry companies have several “deficiencies” in their disclosures to investors, including insufficient information in their financial statements, Canadian securities regulators say.

The Canadian Securities Administrators reviewed the disclosures of 70 public companies in the marijuana industry and found licensed producers often did not provide enough information for an investor to understand their performance.

The umbrella organization of the country’s provincial securities regulators noted that all of the licensed cannabis producers reviewed needed to improve disclosures regarding the fair value of their plants.

The accounting practice, in which a value is put on pot plants before they are harvested, has been criticized because it is confusing for investors and approaches differ among companies.

“The cannabis industry has benefited from increasingly permissive legal frameworks and has grown significantly as an emerging public market sector,” the CSA said in notice published Wednesday.

“Our review identified industry specific disclosure deficiencies, which are notable given the recent rapid growth of this industry.”

The CSA also noted that 74 per cent of publicly listed cannabis companies with operations in the U.S. — where marijuana is illegal at the federal level — did not provide sufficient disclosure about the related risks, as requested by the umbrella organization.

The notice seeking improvement in disclosures from cannabis companies comes one week before recreational marijuana is legalized across Canada on Oct. 17.

In the lead up to legalization, investor interest in the volatile sector has soared. Valuations of some cannabis companies now rival those of firms in more established industries.

For example, shares of Nanaimo, B.C.-based licensed producer Tilray Inc. rose as high as US$300 last month on the Nasdaq market — up from US$17 per share during its initial public offering in July.

It has become increasingly important to get a clearer picture of the cannabis industry, said Mark Rosen, co-founder of independent research firm and forensic accounting firm Accountability Research Corp.

“Investors are challenged enough with some of the sky high valuations in the market,” he said.

“Anything that can help them on the back end try to figure out what these companies are doing and what the risks are, all the better.”

Armina Ligaya, The Canadian Press

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