RE:RE:After a very serious look thru of the yearly financialsHere is the problem with using IFRS as opposed GAAP. IFRS accounting, which enabled MJ LP's to record cannabis as revenue while it grows and to selectively capitalize expenses. Neither of these practices would be allowed if the cannabis company used GAAP.
The fact is that CEOs of cannabis companies such as Canopy Growth, Aurora, Aphria (NASDAQ:APHA), Tilray, Cronos (NASDAQ:CRON) and others realized that IFRS allowed them to increase revenue simply by cultivating more cannabis plants. If revenue was going to fall short, no problem, just cultivate more plants, and that would boost earnings. Both CRON and CGC use GAAP now.
IFRS Benefits
A cannabis company CEO does not have to be an accounting genius to play IFRS and EBITDA like a fiddle. They can produce revenue without having to sell product by alloting a fair market value at particular stages of the plants growth.
The problems with IFRS are well understood by accountants and easily taken advantage of by cannabis CEOs, who falsely claim they are required to use that system of accounting. The truth is that cannabis companies incorporated in Canada are not required to use IFRS. They can switch to GAAP, but they prefer not to do so because they want to be able to play games with their income statements. They also want to continue to feature their Adjusted EBITDA numbers, thereby, drawing attention away from their deteriorating balance sheets, income statements, and operating cash flows.
The focus on EBITDA has allowed balance sheets to become cluttered with goodwill, intangible assets, leases, debt, and growing accumulated deficits. It has also enabled cannabis companies to acquire marginal assets with lengthy and questionable payback potential.
Publicly held cannabis companies touting their growing cash position funded from operations are to be prized, while those touting their adjusted EBITDA need to be viewed with a degree of suspicion.