Biological Assets — Growing Cannabis Plants at Fair Value (IAS 41 for Canadian Companies)

💡 Accountant's Note

Canadian cannabis companies (Canopy Growth, Aurora Cannabis, Tilray, Cronos) listed on the TSX report under IFRS — and IAS 41 (Agriculture) requires that biological assets (living plants and animals) be measured at FAIR VALUE LESS COSTS TO SELL at each reporting date. For cannabis cultivators: plants in the growth stage are biological assets — they must be remeasured to FV at each quarter-end, with changes recognized THROUGH PROFIT OR LOSS. The FV calculation: (expected harvest quantity in grams or kilograms × expected selling price per gram) − (estimated costs to complete the harvest × discount factor). This created a peculiar phenomenon in early cannabis reporting: companies with large growing crops reported enormous unrealized gains on their income statements — even when the business wasn't operationally profitable. In contrast: US cannabis companies under US GAAP do NOT apply IAS 41 — their plants are inventory at cost. This creates a fundamental incompatibility between US GAAP and IFRS cannabis financial statements that prevents direct comparison.