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As Cann Group (ASX: CAN) looks to finally reap the fruits of its capital-intensive $115 million Mildura production and manufacturing facility, the fast-growing medicinal cannabis company has been pulling out all stops to shore up finances and remain onside with the lenders that believed in its ambitious project.
This morning the Melbourne-headquartered group announced it had secured a $5 million debt facility from an unnamed prominent Australian private credit fund.
Despite achieving its highest ever A-grade flower yield at the Mildura facility in the March quarter and notching a year-on-year sales increase of 18 per cent to $11.6 million, Cann's cash receipts of $3.25 million were actually down a massive 40 per cent versus the December quarter as "certain commercial activities were stalled pending the company securing funding".
With its survival dependent on aggressive growth to pay down the $64 million debt on its books by the end of 2023, securing immediate funding has been vital for Cann to execute its plans and remain as a going concern.
For a large part of that debt, mostly owing to National Australia Bank (ASX: NAB), repayments won't kick in until March and May next year.
Amidst this leniency, Cann has been boosting its liquidity recently including the final payment of $1.9 million from SatiVite on asset sales from its formerly owned southern manufacturing site, and the $1.7 million sale of surplus equipment to Biortica Agrimed.
The latest $5 million injection, in the form of a lump sum, also follows a $2 million loan lifeline in November from Obsidian Global LLC.
"This facility provides Cann with immediate funding which is necessary to continue operations for the next 12 months," says Cann Group executive director and interim CEO Jenni Pilcher.
"Importantly, the funding allows us to accelerate our revenue growth strategies, specifically focusing on the expansion of Cann’s proprietary Botanitech brand," says Pilcher, who stepped into the role following the surprise resignation of CEO Peter Koetsier for family reasons after just 14 months in the job.
"This expansion includes the introduction of innovative new product lines into the portfolio for release in September of this year. We will continue to manage costs judiciously and ensure our growth is done in a financially responsible manner."
In a quarterly report released at the end of April, Cann noted its operational spending had been cut by 24 per cent year-on-year to $7.07 million following right-sizing initiatives and the implementation of production facilities in Mildura, where 84 per cent of flowers were of A-grade yield during the period.
This was out of a total production of 840kg of inhalable flower for the three months, in which three new commercial lines from an in-house breeding program were introduced.
"The facility introduced a new hang drying process which involved significant changes to material flow and re-tooling the drying racks," the company added.
"The new process is more labour efficient and delivers better customer desirables due to the inclusion of a cold curing phase, resulting in higher retention of moisture and terpenes, as well as improved trim quality.
"Cann’s Mildura facility is now a fully-commissioned and established world-class cultivation, manufacturing and analytical testing centre. Cann’s investment in a multi-head filler will result in a threefold increase in packing capacity and resultant efficiency gains, when commissioned next quarter."
Pilcher, who has been on the board since September 2020, has been executing a strategic and operational review of the company, and has been joined in the executive ranks by Tony Di Pietro as chief financial officer since mid-April.
"This quarter has undoubtedly been a challenging one, and I would firstly like to thank shareholders for their patience and support as we work through some of these challenges," interim CEO Pilcher said in the quarterly update.
"Since stepping in, in an executive capacity (initially in February to assist with the finance function), the immediate priority has been to realise cash from the sale of surplus assets, to restructure the cost base to a more manageable level and to obtain new capital."
Pilcher said that asset sales, as well as the internal restructure and exit of the company's Port Melbourne offices, has contributed $1.4 million savings per annum.
"With additional funding now in sight, I am in the process of implementing a new commercial plan that will see us focus on our higher margin Botanitech range, which will be accelerated by new lines in the coming quarters and move away from production for white label customers which invariably has lower margins, is less predictable and contains greater credit risk," Pilcher said at the time.
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