UNITED KINGDOM: Cambridge Judge Business School (CJBS) and cannabis operator and investor White Sheep Corp. announced their collaboration on the first “seed-to-sale” accounting case study on the cannabis industry – “High” Profits From Accounting For Cannabis Plant Inventory – co-authored by Alan Jagolinzer, Michael Miller and Steven Looi. The case study will be taught for the first time today by co-authors Jagolinzer and Miller at CJBS.
This case examines questions raised about financial reporting in one of the world’s fastest growing industries, cannabis, aiming to guide students through the reporting process for an industry that is being legalised by an increasing number of jurisdictions. The case focuses, ultimately, on what key decisions go into deciding the fair value of a cannabis crop and how this is reflected on the financial statements.
Michael Miller, Director of Finance at White Sheep Corp., says: “We are honoured to partner with CJBS on this landmark case study. As the first accounting case to directly address the cannabis industry, this is a strong signal to the academic community that it is time to build cannabis into the curricula. The issues explored in the case will continue to emerge as new jurisdictions and new companies enter the industry. We aim to help investors understand the income statements and make better informed capital allocation choices.”
Alan Jagolinzer, Professor of Financial Accounting at CJBS, says: “CJBS is partnering with global business experts to create and enhance complex, innovative, and pertinent academic curriculum to develop students for business leadership. We are very excited to join White Sheep in creating the world’s first accounting case study on the cannabis industry, which is seeing enormous capital growth despite considerably complex and confusing financial reporting. I can see why investors might want to consider publicly-traded cannabis companies. However, I highly doubt they understand the accounting because of the unique rules for agricultural inventory. This case will certainly liven up our discussions of financial accounting and help the professionals of tomorrow to start building these skills today.”
White Sheep was evaluating the financials of several of the top publicly traded cannabis companies when they identified recurring gross margins in excess of 100% on the income statements. Miller and Looi realized this could not be the norm for any company. To explain the exceptional circumstance, they focused on how cannabis plants are treated under IFRS, the accounting reporting standards which govern Canadian public companies. This inspired an article in February 2017 to serve as a healthy warning to investors looking to pile in based purely on the ‘profitability’ of these companies.