Cannara Biotech's "First" Analyst Report

Analyzing the Analysis

It was brought to my attention that an analyst report was published regarding Cannara. As such, today's piece is an analysis of the analysis and more specifically where I’m confused and what I have issues with.

You can find the report here or on Niko Dank’s Twitter page.

I’ll start off by saying that it’s interesting as to what people call analysis. I’d say that the vast majority of “analysis” isn’t analysis per se but more along the lines of propaganda. It’s often a one-sided, partial, incomplete and uncomprehensive view that’s predominantly skewed in either a bullish or bearish fashion. You know it’s propaganda in a few ways. The analysis is practically entirely about the “good” of Cannara. Also, the risk section is a flippant ⅓ of a page which is tucked towards the end of the publication with minimal discussion or elaboration, especially relative to the “reward” sections of the publication.

There’s also no arc of development or reasoning process in the form of a thesis, antithesis, synthesis, conclusion. It’s pretty much a thesis which often is disguised as synthesis and then a conclusion (Buy).

Although I predominantly don’t live my life that way I can understand how it comes about. The thought process is something along the lines of:

The good outweighs the bad so much so that the bad doesn’t ultimately matter, meaningfully contributes and/or is minimally relevant to the conclusion, therefore there’s no point or minimal point in mentioning it.

As such, all they find necessary is to provide obligatory “disclaimers” predominantly in the form of abstract risks over a ⅓ of a page. It’s not about providing you with a comprehensive overview for you to draw your own conclusions, it’s about telling a one-sided story.

This is why you hear ideologies, true believers and propagandists go on a bullish tangent for an hour to then have someone bring up a concern and for them to then say something to the effect of “you need to do your own due diligence” or “caveat emptor”.

Interestingly enough, they don’t feel like you need to do your own due diligence for the positives, that’s why they went on an hour tangent regarding the bullish dynamics. Essentially, they’re saying, "figure it out for yourself or run the risk of never knowing because I’m not going to tell you even though I might know”. It’s like dating, it’s up to you to figure out what’s wrong with the other person because seemingly they’re under no moral obligation to inform you. So much for full disclosure, honesty, transparency, communication etc.

With that said, let me share with you a few things that caught my attention.

GROW ZONES AND KILOGRAMS

The following section is me trying to work through the discrepancies in the below table.

From the get-go, I was confused. I’ll explain why.

The analyst said the following:

“Low-Cost Capacity Expansion with Embedded Operating Leverage: Cannara is scaling its production platform through a disciplined, modular expansion strategy that more than doubles current capacity for a total investment of just $22 million. The company is currently producing ~39,500 kg annually and is targeting 50,000 kg by FY2026, rising to 62,500 kg by FY2028. The remaining cultivation zones at its Valleyfield facility will be phased in based on demand signals, with each grow room costing only $1 million to bring online - capping annual CAPEX at $2 million in FY2026, $3 million in FY2027, and $3 million in FY2028. “

In the first half of that paragraph, he’s calling for the following due to each grow zone being roughly a 3,000 kg addition (which he implicitly acknowledges elsewhere):

FY 25 = 39,500 kg (36,000 kg from Valleyfield’s 12 active grow zones + 3,500 kg from Farnham).

FY 26 = 50,000 kg (roughly 3 additional grow rooms)

FY 28 = 62,500 kg (roughly 4 additional grow rooms)

He’s calling for 7.6 additional grow rooms by FY 28, insofar as each grow room is 3,000 kg.

But the second half of the paragraph goes on to implicitly state the following (if you convert his Capex spend to grow zones ($1M capex = 1 new zone)

FY 26 = $2M capex (2 additional grow room equivalent)

FY 27 = $3M capex (3 additional grow room equivalent)

FY 28 = $3M capex (3 additional grow room equivalent

There’s a couple of things which seem off here.

1. The math seems wonky. Why are they calling for either 7.6 or 8 grow rooms or for each grow room to produce 2,875 kg (23,000 kg addition divided by 8 additional grow zones)?

2. This is largely in contradiction with the MD&A, investor presentation and what Niko Dank has said in interviews.

Maybe it’s a timing issue? Maybe he’s assuming that the later grow rooms will be more efficient? Maybe he’s being conservative? I don’t know because I can’t find what the underlying math is predicated on to make sense of it, either in an internally consistent (point 1) or externally consistent (point 2) way.

Although he oddly enough never explicitly states what each “zone” (e.g., grow room) can support, the below math implicitly recognizes 3,000 kg per zone.

“24 Independently Controlled Grow Zones: Encompassing 600,000 sq. ft. of total indoor canopy, with 12 zones (300,000 sq. ft.) currently active. This supports an annualized production capacity of ~36,000 kg.”

I guess I’m getting tripped up over a measly 1,000 kg. His initial 62,500 kg should instead be 63,500 kg. I’m not too concerned over this, it’s directionally accurate. The reason I’m including it in this is because it initially tripped me up and thus it might trip you up.

My much larger concern is that what he says appears to contradict what Niko Dank has said in interviews as well as the investor presentation and what the Q1 ‘25 MD&A said:

“Over the next 3 years, the Company expects to activate an additional 14 grow zones for a total of 600,000 square feet of cultivation capacity.”

The Q1 MD&A was published on January 27, 2025. Three years from that date would be January 27, 2028. It’s important to keep in mind that their fiscal year ends August 31. Which is to say that 3 years would put them roughly halfway through FY 2028. Which gives Cannara 6 months of leeway to accomplish building out the rest of the grow zones.

On July 6, 2025, Niko was a guest on Smallcap Discoveries. At roughly the 3-minute mark, Niko said, “Once fully scaled, our platform will be able to do 100 million grams a year, and we believe that we’re going to be able to get that there in the next two to three years.”

Well, even with him saying that roughly 6 months after the Q1 MD&A was released, that still falls in the window of FY 2028.

This would indicate to me that not only are they going to have all 24 zones activated in the next 2-3 years but that whatever efficiencies that they plan on doing which would take it from producing 72,000 kg (run rate of 3,000 kg x 24 zones) 100,000 kg, will also occur.

So yet again, I don’t understand the analysts' calculations.

Between the MD&A stating this, the CFO stating this in more than one interview and the fact that he presumably came across my articles in his due diligence process, I don’t understand why he’s only calling for 8 rooms rather than 12 rooms for a complete buildout by 2028.

This is a significant & material discrepancy between the analyst's guidance and what the MD&A and CFO is saying. You would think that this research group would want to address their material deviation to avoid misleading investors. Or I’m getting something terribly wrong. The only good faith thing I can consider is that either I’m wrong in my interpretation or that they’re sandbagging expectations. I don’t know.

Worse yet, is that although they might be off by 4 grow zones, which under normal assumptions would equate to 12,000 kg the CFO in the above-mentioned interview is stating that they should be hitting 100,000 kgs in 2-3 years. Which is to say that the analysts' expectations are off by 37,500 kg. The silver lining is that it’s off in a conservative way.

I hate to beat a dead horse here, but this all strikes me as very odd. For instance, their forecast of 62,500 kg for FY ‘28 contradicts the image in Cannara’s investor presentation, which calls for 75,000 kg.

Yet again, if you run the math, 24 growing zones x 3,000 kg per zone = 72,000 kg. Then add the 3,500 kg from Farnham and you get roughly 75,000 kg by FY 2028. And guess what, that’s what the above image is suggesting.

So, what’s with the seeming discrepancy of an additional 8 rooms for a grand total of 62,500 kg?

EBITDA, ADJUSTED EBITDA, IT’S THE SAME THING

I’ve belabored this point to death, but I’ll keep on doing it. It’s often the case that at first a person will specify that they’re citing an adjusted figure, in this case, ADJUSTED EBITDA. But as the conversation continues, they become sloppy. Simply put, this is how ADJUSTED EBITDA becomes EBITDA. And this is how unwary investors can become victims.

The analysis in this article I’m referencing does this multiple times. What first clued me in was that they started off with exclusively citing ADJUSTED EBITDA and then started citing both EBITDA and ADJUSTED EBITDA. This lack of standardization is a red flag in my experience for the very reason I’m explaining to you. Once I realized that I started paying closer attention. I then noticed that they cited the same dollar denominated figure in both ADJUSTED EBITDA and EBITDA terms.

While paying closer attention I noticed that they referenced EBITDA figures for Cannara. I thought this was odd for a couple of reasons.

1. ADJUSTED EBITDA is generally more flattering and thus standard among so-called analysts (e.g., investment bankers hoping to seek favor).

2. Cannara doesn’t report EBITDA, they report ADJUSTED EBITDA. Meaning, that the analyst would have to go out of their way to figure out the EBITDA figure, which seemed unlikely to me.

It also struck me as improbable that both ADJUSTED EBITDA and EBITDA would be the same dollar figure.

For instance, on page 1, they said:

“That momentum accelerated into FY2025, with $13 million in adjusted EBITDA (25% margin) and $5.6 million in net income already reported in the first half.”

Yet on page 14, they said:

“Momentum has accelerated into FY2025, with $13 million of EBITDA (25% margin) and $5.6 million in net income already achieved in the first half.”

Now, you might be saying that this was an oopsie doo and fair enough.

But this isn’t just a 1 or 2-off situation.

Another example is their statement:

“Cannara has delivered 16 consecutive quarters of positive EBITDA.”

That’s a factually false statement. Cannara had negative EBITDA in Q2 ‘24. However, they did have positive ADJUSTED EBITDA in Q2 ‘24.

Or, as a final example, on page 14 in their Cannara Biotech Inc. - Financial Forecast through FY2027E model they state that EBITDA was $15,135. But that’s what ADJUSTED EBITDA was.

I tried calculating EBITDA both by starting with Net income and adding back ITDA, as well as by starting with ADJUSTED EBITDA and reversing the adjustments. Either way, I didn’t get $15,135. The closest I got was either $15.8M or $14.4M. This leaves me to believe that much of their evaluation work is predicated on inaccuracies.

Upon recognition of this, their valuation models are immediately suspect. Is their EV/EBITDA actually EBITDA or is it ADJUSTED EBITDA. And the same goes for the peer group they compare them to on page 15. It also doesn’t address whether they’re controlling for the varying adjustments that different companies make to their ADJUSTED EBITDA figures and by extension the relevance of comparing such figures.

Which brings me to my next point.

A SUBSET OF COHORTS ARE ALL OF THE COHORTS

I find who they choose and how they reference those chosen as industry comparable to be interesting (pg. 15. Figure 9). Put differently, I find it interesting who they didn’t choose as industry comparable. This is why I insist that you have to question the concepts in a statement as much as the statement itself.

Why are Tilray, SNDL, Aurora, Canopy, Organigram, Village Farms and Decibel the comparable? And why is Decibel thrown in there, it seems odd. Like, they could have stopped the list right before they got to Decibel.

Do they cover or plan on covering Decibel, is that why?

And why don’t they mention names like Auxly, Rubicon, Avant, Simply Solventless, 1CM or MTL?

And why do they include United States MSOs? And why the ones which they chose (Green Thumb, Curaleaf, Trulieve, Verano, Cresco and TerrAscend)?

Yet they don’t include Glass House (perhaps I shouldn’t mention them with the current unraveling of matters), Grown Rogue or C21.

It seems like a preference for the so-called Tier-1 MSOs and LPs. But doesn’t that by definition mean that Cannara isn’t a Tier 1? Maybe Cannara is a so-called Tier-2. But shouldn’t you then juxtapose them to their other Tier 2 peers?

It's fascinating and ironic to see them marginalizing smaller, high-growth companies while trying to highlight such a very company. I would like to think this is because they view Cannara as a so-called Tier-1 contender and by comparing them to the so-called Tier-1 LPs they’re implicitly acknowledging Cannara’s potentiality, but I suspect that’s not the case.

First of all, there’s a reason I keep saying “so-called”. Because people have conflated market capitalization size with Tier, and tier naturally then gets conflated with quality, which is woefully simplistic and frankly irresponsible and is a disservice. I’m not saying RCC is doing that, I’m saying that’s what people do. After all, if you knew nothing about the cannabis industry and I said someone was a Tier-1 company, wouldn’t you think I was referring to more than just their market capitalization?

The main reason I suspect that they and others reference the so-called major LPS is because it’s a common issue in equity research. These sorts have a tendency to rely on a narrow set of well-known comparable due to convenience, investor familiarity, analytical inertia and plain old intellectual lethargy.

Of course, no one is going to admit that. I suspect the post hoc reasoning is something along the lines of, we selected these companies to focus on a representative subset of prominent, liquid, and analyst-covered Canadian cannabis LPs that align with Cannara’s operational and financial profile, while prioritizing investor familiarity to support the BUY recommendation and $3.00 price target.

Let’s move onto a quote that most people wouldn’t think twice about.

“Canadian cannabis equities are currently trading at an average of 10.6x EV/EBITDA (2025) and 6.4x EV/EBITDA (2026).”

No, they’re not.

Linguistically, “Canadian cannabis equities” implies all equities in the sector because English convention treats unqualified collective nouns as general or comprehensive, especially in formal financial writing. The absence of “all” does not negate this implication; rather, it reinforces it by relying on the reader’s contextual interpretation.

I know, I know, “You know what they mean, read for context, don’t be pedantic.”

All I have to say to that is, “No can do.”

In English, unqualified collective noun phrases in formal contexts (like financial reports) are typically interpreted as referring to the entire category unless restricted, which it wasn’t.

Now that we’re privy to their fallacy of composition, should we go back and re-read their “Canadian Cannabis Industry Trends and Structural Evolution (2020–2025)” section with this in mind? Honestly, no. Why? Because the best I can tell is that their “Canadian cannabis industry” phrase is correct although their “Canadian cannabis equities” is wrong.

I find this to be a serious issue. Yeah, I get it, they were clearly referencing the aforementioned stocks. But between listing those companies at the exclusion of other companies and then hastily making generalized comments which require contextualization, plus industry norms of overlooking smaller yet similar quality cohorts, I find a distasteful behavior emerging.

More specific to the cannabis industry, I’m tired of the discrimination and exclusion of smaller minority players. Make no mistake, this is on a systemic and structural level.

I'm not going to quietly standby and not bring up the fact that people talk like all these other smaller companies don't exist and aren't relevant. Make no mistake, via their omission of other players, they are indirectly and implicitly stating that the other players aren’t or are less relevant compared to the so-called Tier-1 LPs. After all, that’s why their table excludes them. It sure wouldn’t make much sense to exclude relevant peers. And then they double down in sloppy speech that further ignores their existence.

I'm not going to entertain that pretext, especially when such people could easily use a modifier to limit their statements' scope. Plus, this is an existential battle for me (one that I’m clearly losing).

If it was a one off, so be it but this is an iterative phenomenon across a set of actors. Nor am I too supportive of argumentative structures that such things as racism, sexism and every other ‘ism (not implying that here but is me abstractly spiraling) is predicated on (e.g., false syllogisms, fallacy of composition, hasty generalizations etc.). So, you’ll have to forgive me for being "pedantic".

To keep it on topic, such statements as “Canadian cannabis equities” without qualifiers (e.g., “select,” “major,” or “these”) implies that the seven listed companies are representative of the entire sector, effectively erasing the existence and relevance of other publicly traded Canadian cannabis companies. This is problematic for several reasons.

By omitting these companies, RCC (Research Capital Corporation) not only distorts the sector’s valuation landscape but also marginalizes other players' contributions, which could mislead investors about the industry’s diversity and competitive dynamics.

As I’ve noted, this goes well beyond RCC. This is not an isolated incident. Financial research reports in the cannabis sector frequently focus on a narrow set of large, well-covered companies while sidelining smaller industry participants for all sorts of reasons. And as I noted, it’s ironic that they’re doing this to a cohort of names which Cannara has historically been categorized in.

I’m just curious as to why they and many others find it appropriate to consider the 7 listed companies as comparable peers and not the names I provided? Or all of them for that fact. Especially when claiming to provide an industry average which is clearly not an industry average.

They could have said a lot of true (truer) things but didn’t. For instance, they could have said, “a weighted average of the aforementioned listed comparable.” Of course, that doesn’t answer why those were the companies that were chosen to compare Cannara too or why other companies weren’t chosen.

They literally could have added the word “these” to make the statement true (These Canadian cannabis equities).

Of course, that doesn’t address the presupposition of why those are the relevant comparisons but it’s a step in the right direction.

People’s propensity to not use modifiers or qualifiers is nothing new. And I’m only hitting on a few examples. I’ll finish with this example.

On page 14, in their Cannara Biotech Inc. - Financial Forecast through FY2027E model they have revenue in their table. That’s it, revenue.

Which revenue?! Revenue in and of itself is too vague and ambiguous of a word in the context of the cannabis industry.

You know, ostensibly, the point of such professional publications is supposed to help people better understand the respected industry or company. Not force them to juxtapose everything to the official filings to see what it is the article is referencing (as in what would be required to realize that by EBITDA, they mean ADJUSTED EBITDA except for the times that they actually do mean EBITDA).

So, what is their model table representing when it says “Revenue”.

The answer is what Cannara calls “total revenues”.

Cannara has 3 different kinds of primary revenues that they recognize (and 1 of them they don’t even write out in their tables). The 3 kinds of revenue are: gross revenue, net revenue and total revenues. And then the MD&A references it as “total revenues” but then you won’t find a single mention of that phrase in their Consolidated financial statements.

The “Revenue” that RCC is referencing is actually called total revenue.

For someone who doesn’t know what’s going on this can be confusing, especially if they’re unfamiliar with the cannabis industry and its lack of standardized reporting across different companies.

Below is their MD&A. In red, I wrote total revenues and highlighted the accompanying portion of the table which is represented by that.

However, if you look up the consolidated financial statements first, you’ll see a different looking image.

All of this is to say that “revenue” as a line-item doesn’t exist outside of being a categorical placeholder to compartmentalize the subset. That’s why you’ll notice that practically every time revenue is mentioned it’s being modified with an adjective. Yes, another unforced error due to not being able to add an additional word to something. I don’t feel like I should have to look up which revenue they’re referencing. And although I can presume that they’re referencing “net revenue” or in Cannara’s case “total revenues”, due to being familiar with industry practices, that doesn’t mean that new entrants to this industry could reasonably intuit that.

Now, you’d think, for an MD&A that cites “total revenues” on 42 separate occasions, that they’d be able to put it in their tables too, but that’s a different problem for a different time.

I’m not going to even touch upon the valuation modeling that they did. Both because this has gone on long enough and because it’s my belief that it’s largely predicated on a false presupposition (e.g., the number of grow zones being activated and the number of kgs being produced).

Keeping what I’ve said in mind, I still think it’s worth a read. It definitely outlines matters in a more fluid and readable fashion than what I have a tendency of publishing.

Once again, here’s the link.

CONCLUSION

I was initially looking forward to reading this publication, as I wanted to see what “professionals” thought of Cannara. However, I’m left confused. The reason is due to a conflict of beliefs. I’d like to believe that I’m capable enough at reading financial filings and listening to podcasts to conclude that they’re activating all the grow zones in the next 2-3 years. However, I also want to believe that even a junior analyst, who may I remind you has presumably gone through 4 years of college education, can also read and listen. My natural propensity is to believe that I’m wrong, but not only do I not understand how, but I obviously would like to think I’m not.

Of course, one thing that does comfort me when it comes to this sort of “professional” coverage is that this space doesn’t have a good track record. Essentially, you have creative liberties, and your presuppositions will be minimally scrutinized. With such classic reminders as the below.

Naturally, as a full-blown devil's advocate, I’m triggered reflexively to take the other side of an argument. In today's case, they were bullish and by extension I was bearish. However, and interestingly enough, reviewing this analyst's work has made me more bullish on Cannara, not because of what they said but of what I discovered in the process of pointing out what I perceive to be errors. Funny how that works. I guess this also means that the analyst ultimately did their job successfully.

I know I said I was going to skip the valuation modeling, but I think I’ll briefly comment on the topic. It appears to me that they could have just as well said, over the last two years Cannara has traded at roughly an 8x EV/EBITDA at their FY ending period on a TTM basis. As such, it seems reasonable to continue such an assumption based upon the recent past being prologue, the Canadian cannabis industry improving and that it isn’t an unreasonably high multiple for a company growing EBITDA at the pace which Cannara is doing. As such, you should expect a doubling in share price over the next 2-3 years if for any other reason because production will double and along with it, EBITDA. Or, because we expect EPS to double by FY 2027 and all else being equal, share price should follow suit.

As is often the case, I agree with the analyst's sentiment, yet I don’t necessarily agree on the means and process in which they reached their conclusions.

I’ll end this on a positive note and say that the following quotes seem accurate to me and there’s more where they come from. Which is to say that this article was to highlight things that I disagree with, not that I disagree without the entirety of the article, its sentiment or its conclusion.

“Cannara stands in stark contrast to this broader backdrop. It is one of the few publicly traded Canadian LPs to consistently deliver positive net income, adjusted EBITDA, and free cash flow – key financial metrics that remain elusive for larger peers such as Tilray (TLRY), Aurora (ACB-TSX), and Organigram (OGI).”

“Cannara has also distinguished itself by avoiding value-destructive strategies that have plagued the sector. Management has maintained a disciplined capital allocation framework, monetizing non-core assets, executing on share buybacks, and avoiding dilutive equity raises.”