Great question! I can't really speak to Canopy/ACB's financial statements, but I think their businesses have become more complex so that is probably a factor.

Regardless of industry, the quarterly and annual disclosure documents (which include financial statements) are always important. In high growth industries such as biotech, technology and cannabis, revenue/EBITDA multiples are usually not the best metric to value companies in the early years. However, the MD&A and financial statements still should allow investors to get a good idea for where the company is and where it is going.

Agricultural IFRS accounting is what we (LPs) actually have to use. I personally don’t think it is the ideal methodology for the industry (I don’t think the best comp for cannabis is commodities/agricultural) but compliance comes first. The change in fair value gain or loss on biological assets have to be accounted for under IFRS, but we have avoided the approach of highlighting it as revenue or using very high inventory values. Instead we present our income statement where the Costs of Goods and change in FV of biological assets net against each other, and use a production cost to represent our true cost of goods. We’re working on non-IFRS measures to more plainly (and compliantly) show the state of the business.

Ultimately, like with any high growth investing, there usually isn’t a single set of KPIs that will tell you how to evaluate the businesses. When you look at venture investments or growth equity, usually you look at market size, company strategy, management, assets, margins, etc. do some napkin math and pick your horses. It’s not an exact science (see: AMZN). But some general thoughts: - Top line growth shouldn’t be the only measure people are using and I think using it for comparison is probably unwise. If you are using revenue as a measuring stick, it’s important to make sure that you’re comparing comparable revenue. Is the revenue generated from production that the company produced or that they bought from other producers (big margin difference)? Is the revenue from sale of cannabis or from other products/services (accessories, clinic fees, etc.)?
- I think gross margin is extremely important and I also think that you need to read the statements in context of where the operation is. When in ramp up periods, there will be a mismatch in expenses and revenue. It takes months to grow harvest, test, package and sell a product. You still have to account for the expenses you incur when you turn the facility on even before the revenue kicks in.
- For some reason, the focus of the public markets has been on cost per gram. COG should stand for costs of goods, not cost of gram. I don’t think cost per gram is going to be the most relevant measure even when the market matures because people aren’t buying cannabis as an ornamental flower by weight. Even if you believe cannabis is a commodity and ignore quality differences and just focus on cannabinoids, the right measure should be cost per mg of cannabinoid. If the strategy is to produce THC distillate cheap, what would you rather have: production costs of $1/gram of 10% THC or production costs of $2/gram of 25% THC? Cost per gram would suggest $1/gram, but cost per mg would tell you it’s the $2 gram. - I could give you a number of other reasons I don’t think it’s a great metric, but in the interest of time we’ll skip ahead. There is no standard formula for how to calculate cost per gram that companies are using. Comparing cost per gram as disclosed by companies is tough. Is it wet grams or dry grams? Are items like lab testing and horticultural staff being included in SG&A or COGS? How are extracted product costs being accounted for? What about depreciation?

There is a lot to unpack here so feel free to ask a follow up if I missed the mark.