In Part 2 of this series, we continue to examine why cannabis companies need accounting leadership and the biggest challenges cannabis companies face.
It’s a positive problem: A start-up grows so quickly it’s crucial that they develop a proper accounting and corporate structure early on. But without early intervention from a knowledgeable accounting professional, growth is likely to stall or plummet before the company reaches its full potential.
Today, in Part 2 of our series, the Zeifmans’ Cannabis Team are looking at the ways in which cannabis companies can benefit from accounting leadership as they prepare for a public offering or other strategic transaction.
6. Tax planning knowledge
Tax planning is key to enhancing profit margins. An accounting professional can advise cannabis companies on estate planning, and the strategic allocation of founders’ shares, while reviewing documents prepared by counsel and related tax filings. Without effective planning and foresight, successful Cannabis companies could pay excessive income taxes.
7. Establishing corporate governance and shareholders’ agreements
A knowledgeable accounting professional can help walk cannabis companies through the development of a fair and workable corporate governance regime. Further, the accounting advisor can liaise with counsel, advise on board and committee member qualifications and board activities, and even participate in an advisory capacity in board meetings.
8. IFRS “Fair Value” accounting
As discussed in Part 1 of our series, cannabis companies are generally advised to adopt International Financial Reporting Standards (IFRS). Under IFRS, cannabis companies need to adopt a plant valuation model on a fair value basis in accordance with IAS 41 (International Accounting Standard 41: Agriculture). This presents an enormous challenge, given that the production of cannabis is vastly different from general agriculture, especially when one considers the uncertainties of the market for grown cannabis and the relatively limited cultivation experience of many producers.
The assistance of an accounting professional familiar with the professional standards and the cannabis industry is therefore crucial for most entrepreneurial cannabis companies in developing an accurate plant valuation model and assessing the assumptions while tweaking for production experience and pricing changes.
9. Arranging financing
While financing is always a challenge for new businesses, in some respects this challenge is heightened for cannabis companies, who may face social taboos and increased scrutiny of their business models. An accounting adviser can help to identify the right investment banker, advise on pricing and size of raise, and review documentation from counsel.
10. Going public
Taking a company public is a huge step, and the process requires the diligent guidance of a committed expert. Cannabis entrepreneurs will benefit from accounting professionals with decades of experience advising entrepreneurial companies on going public and other strategic transactions, and can assist by reviewing agreements, assisting with the drafting of the prospectus or listing document, and reviewing the management discussion and analysis.
The Zeifmans’ Cannabis Team combines our industry knowledge and expertise with our deep Canadian and international accounting, financial and business experience and the global reach of our Nexia International Cannabis Team to create an integrated, full-service accounting solution for cannabis companies at every stage of the growth cycle. For more information on our services, please feel free to reach out to Larry Zeifman, Robert Grunwald and Jennifer Chasson.