The Accounting
Properly accounting for weed depends on exactly what you are producing and selling, and involves categorizing your products between biological assets, agricultural produce, and products for sale.
Biological Assets
If your company grows marijuana you likely have a beautiful warehouse full of plants. Those plants shall be recognized as biological assets. The assets will be measured at fair value less costs to sell unless no fair value can be determined, in which case you can recognize as inventory valued at cost less any depreciation.
Agricultural Produce
If your company has marijuana buds harvested and ready for sale, the buds are classified as agricultural produce, and should be measured at fair value at the reporting date less costs to sell.
Products for Sale
If your company has taken those buds and made them into a sellable good other than the buds themselves (like oil, gummies, baked goods – which of course you aren’t selling until October 2019 – those items are classified as products available for sale and should be measured at the lower of cost and net realizable value.
information to go on as prices haven’t been firmly established, unlike most other agricultural products.
Cannabis companies have responded by saying they aren’t trying to dupe anyone, and that because of the need to follow these accounting standards, they are careful to be conservative in their estimates. It wouldn’t bode well for these companies to overvalue their products and post big earnings, only to have to backpedal when, for example, they harvest their crop, and have to sharply revalue their buds in the opposite direction.
Fear not! We have provided a handy guide to help accountants and investors better understand how accounting in a cannabis business works.
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