medical cannabis when harvested.” Now, by simply dividing the estimated value of their biological assets by their expected yield in grams, you can arrive at an expected value per gram. Does this value gel with the information on price we can glean so far? It’s a good way to suss out and compare multiple companies valuations of their biological assets.
Are some companies being ultra-conservatives in their estimates? This leaves room for a company to be possibly undervalued.
The MD&A should spell out some of this information for you, but it is important to understand how biological assets are accounted for under IFRS. The accounting standards are designed to provide information to users of the financial statements in a way that is fair and unbiased. The MD&A may use metrics that may be completely true, but may not be comparable to other companies, and use non-GAAP measures that can tell a biased story.
Final Thoughts
Until the market for recreational cannabis is fully established, valuations of plants, buds, and other cannabis products are not as reliable as established other agricultural products in Canada; but, it isn’t uninformed guess-work. The current grey market gives us valuable insight on what is to come.
As with any new industry, professionals and investors need to pay close attention to developments as they rapidly occur. We at Metrics Chartered Professional Accounting are excited to help the trailblazers in this space set up for success, and will continue to help educate our clients and followers about this thrilling new industry.
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