Last week’s BVWire covered the September 2019 AICPA FVS Eye on Fraud quarterly report, “Marijuana and Forensic Accounting—High Times for CPAs?” In it, the authors provide some cautions on cannabis valuations and indicate that “[i]t appears many cannabis businesses are using the fair value model, which is the same model used in the agricultural industry.” Ron Seigneur’s firm (Seigneur Gustafson LLP) has focused an increasing portion of its practice on valuation, economic damages, and financial forensics work in both the cannabis and the hemp/CBD sectors. He has provided BVWire with some valuable comments on the observation regarding the fair value model:

I suspect the authors are referring to the guidance found in the IFRS accounting pronouncements for the valuation of biological assets for financial statement disclosures (IFRS - IAS 41 Agriculture), but it is unclear from the limited information provided in this article. IAS 41 has been a lynchpin for Canadian pubco financial disclosures for some of the largest cannabis cultivators in the world and given the slow burn many of these stocks have witnessed over the past several months, one has to agree that the risks are many and significant.

Our firm has been doing cannabis appraisal work for many years for a broad range of needs including litigation matters, M&A and even estate and gift. Much our current work is focused on the value of current and pending license rights. While we are well aware of the IFRS guidance we have never used a “fair value model” for any of our opinions. We do agree, however, on the emphasis the authors put on the unique (and rapidly evolving!!) risks associated with work in this sector. All of our work has been for ownership interests within the legal, regulated side of the cannabis industry and our experience has been that the vast majority of those trying to navigate these challenging waters are trying very hard to be fully compliant with the laws and regulations that are in play in their particular jurisdiction, all while many are paying exponential tax liabilities for the privilege of operating a state legal, federally illegal enterprise under the burden of IRC 280E and beyond.

There is a growing (no pun intended) body of knowledge and resources available to assist practitioners who choose to provide service and support in this niche and I applaud the AICPA and BVR for helping to elevate the awareness of what practitioners need to know to competently serve this multibillion-dollar industry.