Even as marijuana stocks boom, the industry has come up short on financial transparency, according to a review of 70 companies by a Canadian regulator.
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The review, released Wednesday by the Canadian Securities Administrators, said cannabis producers often failed to provide enough information for an investor to understand how well a given company is doing.
The review also found that some companies weren't consistently following rules pertaining to forward-looking statements, or a company's outlook toward future conditions.
In addition, CSA found that 74% of companies with a marijuana business in the U.S. didn't sufficiently disclose the risks related to those operations.
Companies flagged by the CSA "either committed to prospective improvements or, when the deficiencies were pervasive, refiled certain documents," the review said.
Marijuana Stocks Put Up Gains
Canopy Growth (CGC) fell 1.8% in the stock market today. Cronos Group (CRON) rose 2.8%, stretching just above its 50-day line. Tilray (TLRY) was up 6.1%.
The report follows some massive spikes in marijuana stocks like Tilray. Lesser-known companies announcing they want to enter the space have also surged. The SEC in September warned about in the industry.
"Given the significant growth and interest in the cannabis industry, it is imperative that investors be provided with transparent information about issuers' financial performance and risks related to their operations," Louis Morisset, CSA chair, said in a statement.
"Our review shows that the quality of disclosure in this area needs to be enhanced, and we encourage cannabis issuers to use this publication as a guide to make improvements," his statement continued.
Marijuana companies have mingled a lot more with the alcohol and tobacco industries this year. The latter two industries are hoping that the high from cannabis can make up for weakness elsewhere. Most recently, Altria (MO), which owns Marlboro, was reportedly weighing whether to invest in Aphria, a Canadian cannabis company.
Meanwhile, New Age Beverages (NBEV), which makes kombucha drinks and coconut water, finally unveiled a line of CBD-infused drinks in Las Vegas on Wednesday. Shares jumped 5.1%.
Starting The Clock
As Canada prepares for recreational legalization on Oct. 17, executives and analysts have offered differing timelines on might start to matter. Some in the industry say that a reality check of sorts could begin next year.
"One of the biggest challenges for the Canadian companies is that they know that an emerging market is going take something like 18 to 36 months to emerge fully," Micah Tapman, managing director at CanopyVentures, said in interview last month.
"So when they legalize on October 17," he said, "start the clock and pay attention to what the numbers are in a year or two, and two and a half years. The investors are not going to wait that long."
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