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Growing Pains: Cannabis Inc Has Problems But They Aren’t What You Think They Are

Growing Pains: Cannabis Inc Has Problems But They Aren’t What You Think They Are

If there’s anything that has, in recent times, dominated the financial news agenda as much as the rise of cryptocurrencies, it’s probably mary jane. Day after day, the breathless coverage of Cannabis Inc. and the treasures it holds for its gung-ho investors has been driving up stock prices in anticipation of the planned July legalization. Consider, for example, Canopy Growth, whose stock price shot up by 270% over the last year, with a market cap that rivals Air Canada’s.

As the numbers soar and the industry gathers more steam, some skeptics and a handful of bearish investors have begun casting doubts on the stocks’ long-term viability — there are misgivings that companies’ financial reports may be misleading, and comparisons being made to the Dot-com Bubble.

When it comes to financial reporting, the Cannabis industry, which has only just stumbled out of Prohibition, is a bit of a Wild West. Financial metrics, particularly non-standard accounting metrics that are typically used by Cannabis companies, are open to a wide scope of interpretation. Investors can’t do much more than place trust in the promise that come July, when Marijuana is completely legalized, sales would skyrocket and their bets would pay off.

Such ominous warnings are, in the world of trading, not unusual; but while there may not necessarily be a cause for alarm yet, there’s a looming — albeit a slightly different — problem that needs to be acknowledged: Record Keeping.

A system of record, audit trails — those minor but vitally crucial details that tell you where your money is going, what it’s been allocated towards, who’s spending it etc. The last time a growing company didn’t care for such trivialities, things did not end well. Just consider Fab, a now defunct e-commerce company. Once valued at $1 Billion, Fab, one of the most exciting tech companies at the time, suddenly realized one Fall morning in 2013 that it had spent $200 Million, with little idea of where that money had gone.

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The landscape of Tech is mined with the detritus of booming unicorns that went bust because they lacked the necessary systems to allocate and track their spending. It would be optimistic to think that the Cannabis industry, which is still in its very infancy, would fare differently.

What do you think?

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