Australian cannabis firm Cann Group’s cash crunch raises concerns

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The Australian Securities Exchange halted trading of Cann Group Limited’s shares after the company’s auditor flagged concerns over financing and the cannabis producer’s first-half operating loss.

Cann Group reported an operating loss of 14.3 million Australian dollars ($9.5 million) for the first half ended Dec. 31, 2023, which was a 24% improvement compared with a first-half loss of AU$18.8 million the previous year.

However, auditor William Buck Audit (Vic) Pty noted that the Melbourne-based company was unable to confirm financial commitments to provide sufficient funding to support the group as a going concern.

“We have been unable to obtain alternative evidence which would provide sufficient appropriate review evidence as to whether the Group may be able to obtain such financing, and hence remove significant doubt of its ability to continue as a going concern within twelve months of the date of this review report,” the auditor wrote.

The Australian Securities Exchange (ASX) subsequently suspended trading of the company’s shares on Friday.

“The securities of Cann Group Limited will be suspended from quotation immediately … in relation to the disclaimer conclusion of the independent auditor in its review of (the company’s) half year financial report for the period ended 31 December 2023,” according to a notice issued by ASX Compliance.

In its half-year report, Cann Group acknowledged “material uncertainty” that might cast doubt as to whether the company will continue as a going concern.

However, per the disclosure, the company also said its directors believe there are reasonable grounds to expect Cann Group will rightsize its operations in consideration of a range of factors, including:

  • Existing debt arrangements being modified after Dec. 31, 2023.
  • Management is pursuing additional cash streams, such as the sale of unused assets.
  • Management also pledged to commence an “optimization program” immediately after conducting a full review of expenditures.
  • Ongoing discussions regarding funding and refinancing options.

Cann Group also said it agreed with its lender, National Australia Bank, to a deferral of the quarterly repayment of its principal loan for one year, with repayment deferred from May 2024 to commence May 2025.

The amount borrowed was AU$49 million.

“Management is currently pursuing several funding options in order to fund the Company through to its next stage of development,” according to the disclosure.

In its financial results for the six months ending Dec. 31, 2023, Cann Group reported sales of AU$8.5 million, representing a 46% increase compared to the previous period’s results.

Cann Group attributed the increased revenue to medical cannabis flower orders from white-label customers and pharmacists, contract packing revenue and consignment sales.

The company’s disclosures are available here.

Cann Group’s shares are traded on the Australian Securities Exchange as CAN.