As of October 17, cannabis is legal across Canada in a monumental legislative change that impacts every sector from law enforcement to businesses.
While the marijuana industry may be rejoicing over the fact they can now legally sell their products recreationally, individual companies still have their work cut out for them to go public and get listed on the stock exchange.
“Typically, the companies don’t have a lot of capital and banks have been sort of steering away from this area until it’s legal,” says Fernando Costa, a partner at the accounting firm Manning Elliott LLP.
That means a company might have the option to purchase land or grow its facilities but lacks the capital to do so.
“Where we get approached is when a company has a business plan ready to go and they need access to capital markets in order to execute on their business plan,” says Costa.
Audited financial statements needed
Going public means that the company is publicly owned and traded, appearing on the stock market, as a way to generate capital.
It’s more than just access to cash flow, though. Accounting help, from tax structures to audits, is needed for a company to go from private to public.
“A company that wants access to those public markets needs to present audited financial statements,” says Costa. “We provide guidance and audit assurance service to those companies in order that they can meet those standards.”
Manning Elliot has seen demand and activity spike ahead of legalization, he says, emphasizing the necessity of being proactive when it comes to getting financial matters in hand.
“The process itself, from the time the company approaches the lawyer or accountants, could take up to six months or even longer at times to get listed on one of the stock exchanges in Canada.”
Prickly bush of cash-only businesses
Prior to legalization, it was tricky for accountants to work with many cannabis companies, particularly on the dispensary side, because of the legal grey area.
“From an accounting-audit point of view, it was a bit of a prickly subject because a lot of it was based on cash – to audit something like that is very difficult,” says Costa.
As legalization loomed, demand from canna-businesses spiked.
“We’ve seen a lot of activity, a lot of companies being listed on the Canadian Securities Exchange and other various exchanges.”
The key piece of advice he offers cannabis companies looking to go public is to reach out to their respective accountants and lawyers as soon as possible.
“People who are looking to go to that market – make sure that you contact your accountants or auditors and contact legal counsel to make sure that both advisers know what the plan is.”
Ultimately, although the cannabis industry is the most up-and-coming because of the legal changes, it won’t be that different from other emerging markets and trends when it comes to accounting.
“Once it gets streamlined, it will be more or less the same because it’s just a commodity at the end of the day, but right now there are a lot of moving parts.”