The Cann Group Ltd (ASX: CAN) share price is out of form and sinking lower on Thursday.
In afternoon trade, the cannabis company’s shares are down 3% to 62 cents.
Why is the Cann Group share price dropping lower?
The Cann share price has come under pressure today following the release of an underwhelming second quarter update.
According to the release, Cann recorded quarterly cash receipts from customers of just $99,000 for the three months
However, management advised that it is expecting its revenues to increase in the currently quarter due to sales contracts and purchase orders that are anticipated to ship to customers pending regulatory approvals.
This includes a shipment of 1,400 units to LYPHE Group to be used in support of Europe’s largest medicinal cannabis registry, Project Twenty21.
Thanks to a $645,000 or ~10% reduction in operating costs from the previous quarter, due mainly to lower production charges, Cann reported an operating cash outflow of $5.3 million.
This left Cann with a cash balance of $27.7 million. It also has a $50 million bank debt facility from National Australia Bank Ltd (ASX: NAB) to support the construction of its state-of-the-art medicinal cannabis production site near Mildura.
Mildura facility update
The release explains that Cann continues to work toward mobilising construction in Mildura, with site activities scheduled to begin in late February.
The company remains committed to using as many Australian workers as possible but there are some specialist roles required from overseas.
As a result, COVID travel restrictions and availability of flights continue to have some impact on the timing associated with this activity. Management is reviewing several alternative plans that will enable work to get underway at full pace.
Outlook
Management advised that customers are placing orders and indicating continued growth in demand in their various markets.
A much stronger second half is expected, with FY 2021’s projected sales revenues heavily weighted to the second half of the financial year. As mentioned above, this is due to the requirement for certain regulatory clearances to be finalised. Management is continuing to work with authorities in Australia and elsewhere to expedite those clearances.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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