Cann Group Navigates Pricing Pressures While Pursuing Critical Financing

Financial Performance and Cash Flow Improvements

Cann Group Limited (ASX: CAN) has delivered a cautiously optimistic quarterly update for the period ending 31 December 2024. The company reported a positive operating cash flow of $0.14 million (excluding interest), surpassing its earlier target of cash flow neutrality. This improvement was largely supported by the receipt of a $1.965 million R&D tax credit refund, a critical boost amid ongoing market headwinds.

Despite cash receipts from operating activities declining slightly by 3% compared to the prior quarter, Cann Group managed to reduce its net cash outflows from operations by 72%, a significant step forward in its financial discipline. Cost-saving initiatives contributed to a 7% reduction in cash payments for operating activities, underscoring management’s focus on operational efficiency.

Production and Sales Dynamics

Operationally, Cann Group increased its dried flower production by 26% quarter-on-quarter to 1.28 tonnes, positioning itself well to meet its ambitious FY2025 target of 5.5 tonnes. This scale-up is critical as the company aims to solidify its status as one of Australia’s largest medicinal cannabis producers.

Sales revenue rose 39% from the previous quarter to $3.75 million, driven primarily by bulk flower sales to major industry partners. However, the company faced a 16% decline in sales compared to the prior corresponding period, reflecting ongoing pricing pressures and reduced contract service opportunities in the flower segment. In response, Cann Group has implemented strategic adjustments including refining its Botanitech brand portfolio and reassessing commercial cultivars to better align with evolving market demands.

Strategic Initiatives and Market Positioning

The company’s commitment to innovation is evident in its R&D program, which continues to evaluate over 800 genetic lines and develop new product formats. Notably, the upcoming launch of the New Release Genetic (NRG) flower product under the Botanitech brand signals a proactive approach to diversifying its offerings and enhancing patient access.

Partnership development also remains a priority, with Cann Group engaging in discussions around genetics sharing, white-label production, and contract manufacturing. These collaborations aim to strengthen the company’s market footprint and support sustainable growth.

Financing and Capital Management

On the financing front, Cann Group raised just over $2 million through a non-renounceable entitlement offer in late 2024 and is actively pursuing the placement of approximately $4 million in shortfall shares. The company is also negotiating with National Australia Bank (NAB) to capitalise upcoming interest payments and extend loan maturities, measures that would provide crucial liquidity relief.

An external financial advisory firm has been appointed to assist with balance sheet restructuring, a move aimed at positioning Cann Group for profitability and growth. While the company acknowledges the need for additional capital in the short term, it highlights multiple funding avenues and ongoing lender support as key enablers for its strategic plans.

Outlook

Looking ahead, Cann Group expects continued sales growth driven by its Botanitech range and new product releases. Production is set to increase, underpinning the company’s FY2025 sales targets. The success of its financial restructuring and capital raising efforts will be pivotal in sustaining momentum and achieving long-term profitability.