The world’s largest legal weed business had its accounts go up in smoke after a spreadsheet error caused it to underreport its losses.
Less than a week after posting its latest quarterly earnings, Canopy Growth had to issue a substantial correction. In the original filing, the company stated its adjusted EBITDA loss for the nine months ending 31 December 2018 as CA$52m (£39.6m).
Turns out the company’s actual losses were a lot, ahem, higher than initially reported. Under the refiled accounts submitted to the Canadian Securities Administration, the EBITDA loss amounted to CA$155m (£88.5m).
The culprit? A spreadsheet formula error. “The correction was made due to a formula error in the spreadsheet supporting the year to date adjusted EBITDA loss calculation,” Canopy Growth said in a press release. “The adjusted EBITDA loss for the three months ended as December 31, 2018 was correct as reported, as were all prior quarters as released.”
Thankfully for Canopy, the bleeding was minimal and the company said no other changes were required to the filing. While the company’s stock fell 2%, its actual earnings report is extremely positive.
Revenue for its fiscal third quarter surged 282% compared to a year earlier. Canopy’s chairman attributed the windfall to Canopy’s decision to move early on legal weed that helped it corner a big part of the Canadian market when the drug was legalised for recreational use in 2018.
Despite the positive news, the spreadsheet risk is a shot across the bow for the high growth business. Legal weed might be an exciting, trendy industry – but it’s prone to the very same risks as any other business utilising spreadsheets.
As Patrick O’Beirne of The European Spreadsheet Risks Interest Group (EuSpRIG) said, “People don't actually test their spreadsheets but accept an answer if it looks like what they expect or want.”
Spreadsheet risk is industry agnostic, said O’Beirne. Canopy’s snafu is far from unique, as readers of AccountingWEB will definitely know. Perhaps the most notable example in recent times is Conviviality. Conviviality’s £5.2m “spreadsheet arithmetic error” was a major contributing factor to the business’s sudden collapse. While late last year, an Excel error caused the Japanese government to delay its planned immigration reform bill.
“Generally, we know that spreadsheets are ubiquitous and their usage is error-prone, so people who don't double check often trip up.”
EuSpRIG’s website has an excellent list of spreadsheet best practices to follow.