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KPMG in Canada has decided to cease providing financial-statement audit services to businesses in the cannabis industry, marking an incredible turnaround for a company that had raked in millions from the burgeoning sector.
The accounting firm confirmed the move in a statement to MJBizDaily, citing “elevated risk” in Canada’s adult-use cannabis industry.
“KPMG in Canada is committed to delivering high quality audits and upholding the integrity of our capital markets,” Kevin Dove, national director of external communications for KPMG Management Services, said via email.
“Given the continued challenges facing cannabis growers, we have made the decision that this elevated risk no longer meets the risk tolerance of our audit practice.”
The move is the latest blow for a sector facing a multitude of micro- and macroeconomic headwinds.
A briefing note to Canadian Finance Minister Chrystia Freeland and obtained through an access-to-information request spelled out systemic “financial distress” facing the country’s cannabis producers.
Some of the issues covered in the report included:
Earlier this month, Canada’s federal government declined to ease up on its excise levy, a tax on sales that industry sources say is the main impediment to sustainable profitability.
The KPMG spokesperson did not reply to further queries from MJBizDaily, notably, about whether the decision applies only to Canada-headquartered cannabis companies or whether it also applies to those in other countries where their shares are publicly traded, such as Israel and the United Kingdom.
Companies receiving notice
So far, Toronto-based cannabis producers Organigram Holdings and Cronos Group both disclosed they received notice from KPMG of the company’s intention not to stand for reappointment as auditor.
In a recent regulatory filing, Organigram noted that, “on April 16, 2024 KPMG LLP provided the corporation with notice that it would not stand for reappointment as auditor … for the 2025 fiscal year.”
To facilitate the transition to a new auditor, KPMG said it is prepared to continue to perform an interim review for the second and third quarters of 2024 and to perform the year-end Fiscal 2024 audit, according to Organigram’s disclosure.
“KPMG indicated that its notification was a result of its decision to cease providing financial statement audit services to companies in the cannabis industry, regardless of the jurisdiction in which they operate,” the company’s U.S. Securities and Exchange Commission filing notes.
The reason KPMG cited for the decision, according to Cronos’ regulatory filing, was the same as the one provided by Organigram: It’s a result of KPMG’s decision to no longer provide financial-statement audit services to companies in the cannabis industry.
“The company anticipates that KPMG will continue to review its quarterly interim financial results through the first two fiscal quarters of 2024,” Cronos’ disclosure says of its April 11 notification by the auditor.
“The company intends to promptly initiate a process to appoint a new independent registered public accounting firm.”
Long history with cannabis
KPMG has been involved with the cannabis industry for years.
In 2019, the year after Canada legalized the drug, U.S.-based publication Business Insider reported that KPMG had raked in millions from providing audit services for the cannabis industry.
One of the biggest clients was then-industry leader Canopy Growth Corp.
In 2023, Smiths Falls, Ontario-based Canopy appointed a new auditor after KPMG stepped down.
In the same year, KPMG’s executive director of strategy, Annouk Bissonnette, spoke at the Canadian Cannabis Conference.
KPMG in Bermuda also has been involved in the cannabis industry, though via insurance.
The auditor also acts as the independent public accounting firm for Aurora Cannabis, but the Alberta-based company hasn’t yet made any public disclosures about the matter.
Matt Lamers can be reached at matt.lamers@mjbizdaily.com.
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