This is Kickstart—the daily morning management briefing on innovation, leadership, technology and the economy from the editors of Canadian Business. Sign up to get it directly to your inbox each weekday at 6 AM Eastern.
Good morning! Here’s what’s on our radar at the moment:
Big weed has an accounting problem
The legalization of recreational marijuana in Canada has been a gold rush, with firms racing to prepare for what could be a multi-billion-dollar market when it opens for business later this year. But gold rushes attract scoundrels and scammers as well as legitimate prospectors, and critics worry that investors are being kept in the dark. Forensic accountant Al Rosen is one of them—he calls the sector “a bloody mess”:
Accountability Research Corp., which Rosen runs with his son, Mark, is warning those statements are misleading and allow companies to overstate profitability. “Canadian reporting of marijuana growers sets a new low for integrity,” the Rosens wrote in a recent report. It’s not that companies are intentionally duping investors—though there is ample opportunity for that, the Rosens argue. Instead, companies are trying to apply already-vague accounting rules to a new industry. Companies have to put a value on their marijuana plants for accounting purposes, even though pricing and future demand are not yet known. As a result, the Rosens charge, financial statements rely heavily on managers’ estimates, and are wildly inconsistent.
Link: Canadian Business
Even Elon Musk’s compensation plan is weird
Electric car company Tesla announced its compensation plan for founder Elon Musk yesterday, and like pretty much everything else the company does, it was calibrated for maximum publicity value. The compensation package sets a dozen milestones for Tesla’s market cap, starting at US$100 billion (it’s about $59 billion today) and rising in $50 billion increments to $650 billion. Each milestone grants Musk a large chunk of Tesla stock, but otherwise he is paid nothing (well, not quite: Tesla actually pays him minimum wage, in accordance with California law). It is, by any measure, an unorthodox way of structuring CEO pay—and not without controversy:
If Mr. Musk were somehow to increase the value of Tesla to $650 billion — a figure many experts would contend is laughably impossible and would make Tesla one of the five largest companies in the United States, based on current valuations — his stock award could be worth as much as $55 billion (assuming the company does not issue any more shares over the next decade, which is unrealistic). Even reaching several of the milestones would bring him billions. Mr. Musk’s critics — and there are many — are likely to contend that the new compensation plan is just the company’s latest publicity stunt.
Link: The New York Times
The meaning of Amazon Go
Amazon Go debuted yesterday, the company’s cashier-less convenience store. Shoppers are tracked by hundreds of cameras in the ceiling, and their purchases are automatically charged on the way out. It’s a nifty trick—lots of artificial intelligence and machine vision software behind the scenes—but what does Amazon have against cashiers? The stores are still filled with staff, making ready-made meals to go and stocking shelves. What’s to be gained by eliminating the checkout counter? Ben Thompson at Stratechery explains: the Amazon playbook is to plow investment into R&D and fixed costs (building the store, the elaborate software to run it) and reduce marginal costs (hourly wages for cashiers). This dynamic is the thing that makes digital companies different:
In every case a huge amount of fixed costs up front is overwhelmed by the ongoing ability to make money at scale; to put it another way, tech companies combine fixed costs with marginal revenue opportunities, such that they make more money on additional customers without any corresponding rise in costs. This is clearly the goal with Amazon Go: to build out such a complex system for a single store would be foolhardy; Amazon expects the technology to be used broadly, unlocking additional revenue opportunities without any corresponding rise in fixed costs — of developing the software, that is; each new store will still require traditional fixed costs like shelving and refrigeration. That, though, is why this idea is so uniquely Amazonian.
Earnings reports today
Canadian publicly traded companies of note scheduled to report quarterly earnings today:
Celestica (CLS), NovaGold Resources (NG)
- National Bank of Canada has announced it’s building a new headquarters in Montreal. The 36-storey, $500 million tower will be the biggest new office building constructed in the city in 25 years. (Bloomberg)
- Lesser-known cryptocurrencies are rife with pump-and-dump schemes. Currencies come and currencies go, but chumps are forever. (Outline)
- A Norwegian Air 787 set a new speed record for a subsonic transatlantic flight, making it from JFK to London Gatwick in 5 hours, 13 minutes. How? It’s all about riding the jetstream. (Wired)
- Millennials—at least the ones with some money—are quite conservative financially. (Merrill)
- Crunching the numbers: which dogs are good dogs? Something for everyone to disagree on! (IIB)
Thanks for reading! Have a truly excellent day.