Cann Group Faces Cash Flow Pressure but Advances Refinancing and Cost Cuts
Cann Group Limited reported a 20% rise in Q3 production and improved operating cash flow, while navigating a 38% sales dip due to order timing. The company bolstered its balance sheet with new funding and expanded its Botanitech distribution network.
- Q3 production up 20% to 1.53 tonnes, on track for 5.0-5.5 tonnes FY2025
- Net operating cash flow improved 27% from prior quarter despite negative net cash flow
- Sales declined 38% due to timing of orders, not demand weakness
- Raised $0.75 million via convertible notes; additional funding secured post-quarter
- Expanded Botanitech product range and pharmacy distribution agreements
Production Growth and Operational Efficiency
Cann Group Limited (ASX: CAN) delivered a solid operational performance in the third quarter ending 31 March 2025, with production volumes rising 20% quarter-on-quarter to 1.53 tonnes of dried cannabis flower. This growth keeps the company on track to meet its full-year production guidance of 5.0 to 5.5 tonnes, underscoring the Mildura facility's increasing capacity and efficiency. The company also reported ongoing improvements in post-harvest processing, enhancing the wet-to-dry conversion ratio, which supports margin expansion.
Cost discipline remains a priority, with payments to suppliers and staff down 16.3% and 37.6% respectively compared to the prior quarter and prior corresponding period. These savings contribute to a 27% improvement in net operating cash flow before interest and R&D tax credits, despite the company still reporting net cash outflows from operations.
Sales Decline Reflects Order Timing, Not Demand
Sales revenue for the quarter was $2.33 million, down 38% from the prior quarter. Cann Group attributes this decline primarily to the timing of customer orders rather than a fundamental drop in demand. White label customer volumes fell 13.5%, reflecting order scheduling rather than market contraction. The company continues to face competitive pricing pressures but is actively strengthening its revenue base through strategic alliances and expanded product offerings.
Funding and Balance Sheet Management
To support ongoing operations and growth initiatives, Cann Group raised $0.75 million during the quarter via its convertible note facility with Obsidian Global GP, LLC. Post-quarter, the company secured an additional $711,902 through a private placement to sophisticated investors and received an $836,469 advance against its expected FY2025 R&D tax incentive from Radium Capital.
Debt refinancing discussions remain active with National Australia Bank (NAB) and private lenders. NAB has agreed to capitalise interest payments for upcoming quarters and extend loan maturities to 30 September 2025, providing critical liquidity relief. The private credit lender has also extended maturity and agreed to settle interest via share issuance rather than cash. These measures collectively strengthen Cann’s financial position while the company pursues longer-term refinancing solutions.
Botanitech Expansion and Research Collaborations
Cann Group continues to expand its Botanitech brand, securing new supply agreements with Chemist Warehouse across eleven Queensland stores, enhancing product accessibility and brand visibility. The company finalized a new cultivar selection program, introducing elite genetics tailored to patient preferences and market demand, with new Botanitech SKUs, including gummies, scheduled for launch in the coming months.
On the research front, Cann remains committed to evidence-based medicinal cannabis use, highlighted by a recent pilot study on Tourette Syndrome published in Cannabis and Cannabinoid Research. The company also transitioned its R&D facility operations to its Mildura cultivation site, aiming for cost efficiencies and closer integration with commercial production, while maintaining collaboration with La Trobe University.
Outlook and Strategic Focus
Looking ahead to Q4, Cann Group anticipates strong demand for its Botanitech range, supported by new pharmacy partnerships and ongoing production capacity improvements at Mildura. Operational efficiency and cost reduction remain key priorities as the company targets 5.0 to 5.5 tonnes of production for FY2025 and aims to improve EBITDA margins. The upcoming Extraordinary General Meeting on 30 May 2025 will seek shareholder approval to refresh placement capacity, providing further flexibility for equity funding if needed.
While the company currently faces negative net cash flow, management expects continued improvement driven by operational gains, funding initiatives, and supportive lender arrangements. Investors will be watching closely how these factors translate into sustained financial stability and commercial growth in the coming quarters.
Bottom Line?
Cann Group’s operational momentum and funding progress set the stage for a pivotal phase of growth and refinancing in FY2025.
Questions in the middle?
- Will sales recover in Q4 as order timing normalizes and Botanitech distribution expands?
- How will ongoing debt refinancing negotiations with NAB and private lenders conclude?
- What impact will new cultivar launches and R&D integration have on product margins and market share?
