Cann Group Faces Loan Covenant Breaches Despite $26.4M Profit and Debt Restructuring

• Reported $26.4 million profit after a $55.7 million debt forgiveness
• Revenue declined 30% to $4.52 million amid refinancing activities
• Operating expenses cut by 33%, improving EBITDA by 42%
• Technical breach of loan covenants with lender waivers obtained
• Issued 934.64 million new shares and converted convertible notes

A Dramatic Turnaround

Cann Group Limited has reported a striking turnaround for the half-year ended 31 December 2025, posting a profit of $26.4 million compared to a loss of $10.7 million in the prior corresponding period. This swing was largely driven by a one-off gain from the forgiveness of $55.7 million in debt following a refinancing deal with its primary lender, National Australia Bank.

However, the company’s revenue fell 30% to $4.52 million, reflecting the disruption caused by refinancing and capital raising activities in the second quarter. Despite this, Cann Group managed to reduce operating expenses by a third, primarily through lower production costs, which helped improve its EBITDA loss by 42% to $2.4 million on a normalised basis.

Refinancing and Capital Moves

The refinancing was a pivotal event during the period. Cann Group settled $70 million of loans with a $15.3 million payment, resulting in the substantial debt forgiveness. To fund this, the company raised $9 million through private placements and a share purchase plan, and secured a new $9 million loan from a secondary lender. This reshaped the company’s capital structure significantly, with 934.64 million new shares issued during the half-year, including conversions of convertible notes into equity.

Despite these efforts, the company was in technical breach of its minimum shareholder funds covenant at the reporting date, a situation that was discussed with the lender beforehand and for which a formal waiver was granted in late February 2026. Additionally, a temporary breach of the minimum cash reserve covenant occurred in early February but was quickly remedied.

Operational and Strategic Outlook

Cann Group’s operational focus remains on expanding its B2B bulk flower business and ensuring steady supply of its Botanitech product range to Australian patients. The company is also introducing new product formats aimed at driving revenue growth over the next 12 months. Cost efficiencies and improved gross margins, driven by scale and product mix, are expected to support this trajectory.

Nonetheless, the company recognised a $19 million impairment charge on its property, plant, and equipment, reflecting cautious valuation amid ongoing market uncertainties. The auditor’s review report highlighted material uncertainty regarding the company’s ability to continue as a going concern, citing the covenant breaches and trading losses, though the directors remain confident based on cash flow forecasts and planned capital raises.

Leadership and Governance

Leadership changes included the appointment of Mike Ryan as Chairman in December 2025, following his consulting role earlier in the year. The board continues to navigate the company through its financial restructuring and operational challenges, with CEO Jenni Pilcher steering the company’s strategic initiatives.

Looking ahead, Cann Group is pursuing additional convertible note offerings and anticipates capital inflows from the exercise of listed options and R&D tax credits. These efforts will be critical to sustaining momentum and addressing the financial uncertainties flagged by auditors.

Bottom Line?

Cann Group’s financial recovery is promising but hinges on successful capital raises and operational execution amid ongoing covenant risks.

Questions in the middle?

• Will Cann Group secure the planned convertible note funding to shore up working capital?
• How will the company manage future loan covenant compliance amid market uncertainties?
• Can revenue growth from Botanitech and bulk flower sales offset the impact of impairment and refinancing costs?