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Cann Group share price slips on trading update

The Cann Group Ltd (ASX: CAN) share price is down 3.3% to $1.33 this morning after the ‘pot stock’ reported an operating cash loss of $3.55 million on receipts from customers of $1.66 million. It also spent $17.66 million over the quarter on developing its Mildura cannabis growing facility. 

According to the company once the investment in the facility is complete Cann Group “is expected to generate annual revenues of approximately $220 million to $280 million based on cannabis dry flower. Cann will also target some production towards value-added downstream formulations and products, which will generate higher margins and revenues.”

This all sounds pretty bullish and is likely to excite some investors, but for now the facility is not even expected to be completed until the final quarter of 2020.

Cann Group had $25.2 million cash on hand at the quarter end, with an expected cash outflow of $20.32 million over the December quarter to meet construction and operating costs. It also announced it has agreed a deal with a ‘major’ Australian bank for debt financing once construction costs and plans are finalised. 

Somewhat predictably Cann Group shares have lost half of their value over just the past year as investor excitement over the pot stock sector starts to wane in the face of financial reality. Based on 141.8 million shares on issue Cann Group still has a market value around $188.7 million. 

I would not suggest buying Cann Group shares or any other businesses in the Australian ‘pot stock’ sector such as Auscann Holdings Ltd (ASX: AC8).

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Motley Fool contributor Tom Richardson owns share sin Dicker Data. The Motley Fool Australia has recommended Dicker Data and Collins Foods. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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