THC Global’s shares took a tumble yesterday after the ASX questioned the accuracy of its financial statements. Shares fell by more than 16 per cent to 23 cents before rallying to 27 cents by the end of the day.
The company’s accounts for H2 FY20 reported a net loss of $5.578 million despite revenue increasing by more than 60% compared to the same period last year to $3.483 million.
Independent auditor K.S. Black & Co. issued a qualified opinion stating it disagreed with THC management over the application of Australian accounting standards.
It said it had not seen sufficient evidence to verify sales forecast assumptions in the company’s financial model.
“This model contained assumptions with respect to the financially feasible sale of medical cannabis oils both domestically and internationally on a prospective basis,” it said.
The model valued its cash-generating unit – including assets/plant and equipment and delivery of cannabis – at $22.9 million. The auditor said this was partly due to projections being drawn from early-stage commercial arrangements.
THC’s written response to questions from the ASX stated: “The Company refutes the ASX’s suggestion that the qualified opinion relates to the independent auditor’s ‘inability to obtain sufficient information to verify the carrying values (emphasis added) of the plant and equipment’.”
“The independent auditor’s report in fact discloses the basis of the qualification as ‘not being able to verify and obtain sufficient and appropriate audit evidence to verify those sales forecast assumptions in the financial model’ (emphasis added).”
THC said it had provided the auditor with “a significant amount of information” and that an independent valuation of its Southport, QLD facility provided the majority of the carrying value of its property, plant and equipment for the half year.
Earlier this month, THC announced the immediate departure of CEO Ken Charteris after two years in the role. CFO Jarrod White has taken on the CEO role in an acting capacity during a global search for a permanent replacement.