How Can MSOs be Ready for US Cannabis Reform?

US operators adopting new financial standards

US cannabis companies want to see federal reform for many reasons, and according to a representative from an active MSO, many have made operational changes to stay prepared for potential regulation changes.

Rebecca Conti Koar, senior vice president of investor relations with Ascend Wellness Holdings (CSE:AAWH.U,OTCQX:AAWH), told the Investing News Network (INN) about some of the moves her firm has made to get ready for a new market when it comes to finances.

The expert explained that the way the company reports its quarterly financials has drastically changed.

The firm now shares its finances following generally accepted accounting principles (GAAP) instead of international financial reporting standards (IFRS).

“You're starting to see a lot of our peers switch over, and I think almost all of them, with the exception of two or three of the top 10, have switched over to GAAP,” Conti Koar said.

According to the Harvard Business School's online portal, under GAAP, “current assets are listed first, while a sheet prepared under IFRS begins with non-current assets.” Furthermore, GAAP standards prioritize liquidity, listing assets based on the ease and speed with which they can be changed to cash.

The benefit lies in complying with requirements for potential senior exchange listings in the US.

“We've been going through the steps to really get our governance in order, so that when it's time to list, we could comply easily with the NASDAQ or the New York Stock Exchange rules,” Conti Koar said.

Cannabis MSOs can’t yet list on senior exchanges in the US because there is no federal framework around the country's industry of plant-touching cannabis operators.

There have been a few pick-and-shovel players listed in the US, but they do not directly grow or sell cannabis.

Experts have pointed to the need for MSOs to reach senior exchanges as a way to expose a more mature investor audience to the cannabis opportunity.

Canadian cannabis companies can list in the US due to the federal legality of cannabis across the border.

Status of federal cannabis reform in the US

So far this year there have been a few critical updates on the path for US cannabis reform.

The Cannabis Administration and Opportunity Act was introduced in the Senate this summer; the bill would remove cannabis from the Controlled Substances Act's list of monitored drugs, among other changes.

However, it’s difficult to project where the bill will go on the Senate floor, as there’s been little to no bipartisan agreement surrounding cannabis reform.

At the state level, however, it’s been an exciting year for the cannabis market, with New Jersey opening to adult-use sales. This could create a domino effect for the northeastern part of the country.

Despite progress at the state level from new and existing markets, James B. Francis, chief research officer at CRB Monitor, recently told INN that companies are struggling from the lack of a federal framework.

Investor takeaway

Operators in the US cannabis market are facing the dual pressures of continuing to operate and focus on their business strategies, while also being expected to plan for potential reform across the entire industry.

Investors will have to closely watch how cannabis companies operate leading up to and following any potential changes in America's law of the land for cannabis.