Cann Group’s Liquidity Crisis: Implications for Investors Amid NAB Non-Waiver Notice

In the volatile landscape of leveraged small-cap operations, Cann Group Limited (ASX:CAN) has emerged as a cautionary tale of liquidity risk and covenant management. The recent non-waiver notice from the National Australia Bank (NAB) over a missed AU$1.4 million payment in September 2025 has intensified scrutiny on the company’s financial stability, particularly as it grapples with a history of covenant breaches and a precarious debt profile [1]. For investors, the implications are stark: a potential erosion of investor confidence, constrained access to financing, and heightened exposure to industry-specific headwinds.

Covenant Breaches and Liquidity Pressures

Cann Group’s financial struggles trace back to 2024, when it first breached its gearing ratio covenant under its NAB loan agreement. At the time, NAB issued a waiver, acknowledging the breach but deferring action [2]. However, the company’s inability to meet these terms in 2025—culminating in the recent non-waiver notice—signals a systemic failure to align its capital structure with lender expectations. According to a report by Marketscreener, the missed payment in September 2025 underscores a liquidity crunch, exacerbated by the company’s AU$65 million debt load (comprising the renegotiated $50 million loan and a $15 million facility) [1].

The gearing ratio covenant, a critical metric for lenders, measures a company’s debt relative to its equity. Cann Group’s repeated breaches suggest an overreliance on debt financing, a common vulnerability in capital-intensive industries like cannabis, where regulatory uncertainties and market saturation amplify operational risks [3]. As stated in its 2024 annual report, the company’s elevated debt profile has strained its ability to service obligations, particularly amid declining revenue growth and margin compression [1].

Renegotiation Efforts and Investor Concerns

In August 2025, Cann Group renegotiated its $50 million NAB loan, a move framed as a strategic effort to stabilize liquidity. While this action demonstrates proactive management, it also highlights the company’s dependence on lender forbearance. The renegotiated terms, though undisclosed, likely include stricter covenants or collateral requirements, which could further constrain operational flexibility [3]. For investors, the lack of transparency around these terms raises questions about the sustainability of the company’s debt strategy.

Compounding these concerns is the absence of detailed stress-test outcomes in Cann Group’s FY25 Financial Report. Stress testing is a critical tool for assessing liquidity resilience under adverse scenarios, yet the company’s public disclosures offer no insight into its capacity to withstand a revenue downturn or interest rate hike. This opacity, as noted in a Marketscreener analysis, could deter institutional investors seeking quantifiable risk metrics [1].

Industry Context and Comparative Risks

The cannabis sector’s broader challenges provide context for Cann Group’s predicament. Tilray Brands, a global peer, has navigated similar turbulence, with its probability of default peaking at 0.735 in 2023 before stabilizing to 0.331 by July 2025 [4]. While Cann Group’s credit risk remains unquantified, its repeated covenant breaches and liquidity constraints suggest a higher vulnerability to market shocks. For small-cap players, the inability to meet covenants often triggers a vicious cycle: reduced access to financing, declining asset valuations, and eroded stakeholder trust.

Strategic Pathways for Recovery

For Cann Group to mitigate its liquidity crisis, a multi-pronged approach is essential. First, deleveraging through asset sales or equity raises could improve its debt-to-equity ratio and restore covenant compliance. Second, diversifying revenue streams—such as expanding into adjacent markets like hemp-derived products—might insulate the company from sector-specific downturns. Finally, transparent communication with stakeholders, including detailed disclosures on stress-test results and debt maturity schedules, is critical to rebuilding investor confidence.

Conclusion

Cann Group’s liquidity crisis serves as a microcosm of the challenges facing leveraged small-cap operations in high-risk industries. While the renegotiation of its NAB loan offers a temporary reprieve, the absence of robust liquidity safeguards and the looming threat of covenant enforcement in 2025 present significant risks. Investors must weigh these factors carefully, recognizing that Cann Group’s ability to navigate this crisis will hinge on its capacity to balance short-term survival with long-term structural reforms.

Source:
[1] Cann Group Limited, Annual Report to Shareholders [https://www.listcorp.com/asx/can/cann-group-limited/news/annual-report-to-shareholders-3084013.html]
[2] Marketscreener, "Cann Group Receives NAB Non-Waiver Letter Over Missed AU$1.4 Million Payment" [https://www.marketscreener.com/news/cann-group-receives-nab-non-waiver-letter-over-missed-au-1-4-million-payment-ce7d59dedb8ef226]
[3] Biotech Daily, "Dr Boreham's Crucible: Resapp Health; Cann Group $15m NAB Loan..." [https://www.biotechdaily.com.au/back-copies/]
[4] Martini AI, "Tilray Brands Credit Risk Analysis" [https://martini.ai/pages/research/Tilray%20Brands-783c2d682c66a1e621c6e217bec60c8e]