10-K: CannaPharmaRx Faces Going Concern Doubt Amid Mounting Losses

CannaPharmaRx, a Canadian cannabis cultivator, reported a widened net loss of $11.1 million for 2025 and faces substantial doubt about its ability to continue as a going concern.

Summary

• Reported a net loss of $11,131,448 for the year ended December 31, 2025, compared to $9,905,789 in the prior year.
• Revenue increased to $1,362,163 in 2025 from $820,137 in 2024, driven by expansion into medical cannabis and new retail partnerships.
• Gross loss decreased to $2,084,908 in 2025 from $2,934,927 in 2024, primarily due to higher sales volumes.
• Operating expenses rose to $1,262,856 in 2025 from $696,022 in 2024, largely due to increased investor relations, advertising, and a new royalty expense.
• Incurred a $4,518,127 loss on impairment of its LTB Management, LLC investment in 2025, after concluding projected cash flows were negative.
• Recognized a one-time $1,930,000 adjustment to lease-related rent expense due to a clarification of lease terms with Formosa Mountain Ltd.
• Cash on hand was $1,804 as of December 31, 2025, with a working capital deficiency of $30,278,570.
• Cash used in operating activities was $789,102 in 2025, an improvement from $1,697,232 in 2024.
• The company is heavily reliant on funding from related parties, with Koze Investments LLC advancing $2,100,510 in 2025.
• All outstanding convertible notes were past their maturity dates as of December 31, 2025, with an accrued penalty liability of $735,002.
• A material weakness in internal control over financial reporting was identified as of December 31, 2025, due to management and staff turnover and inconsistent record-keeping.
• The British Columbia Securities Commission (BCSC) rescinded a Cease Trade Order (CTO) against the company on December 12, 2025.
• Richard Orman resigned from the Board of Directors on January 8, 2026.
• The company plans to increase its growing rooms from six to ten and open a second drying and packing room over the next one to two years.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing with a highly negative sentiment due to the explicit 'substantial doubt about going concern,' worsening liquidity, significant losses, material weakness in internal controls, and multiple legal and default issues, indicating severe financial distress and operational instability.

Positives

• Revenue increased by 66% to $1,362,163 in 2025, indicating growing sales of medical cannabis products.
• Gross loss decreased from $2,934,927 in 2024 to $2,084,908 in 2025, reflecting improved operating efficiencies and higher sales volumes.
• Cash used in operating activities decreased significantly to $789,102 in 2025 from $1,697,232 in 2024, suggesting more efficient working capital management.
• The Cease Trade Order (CTO) issued by the BCSC in 2023 was rescinded in full on December 12, 2025, removing a significant regulatory restriction.
• The company successfully negotiated a Debt Modification agreement with related parties Koze and Mr. Tal, amending interest rates on outstanding notes to 6% and resulting in a gain of $1,256,853 recorded to additional paid-in capital.

Negatives

• Net loss widened to $11,131,448 in 2025 from $9,905,789 in 2024.
• Working capital deficiency worsened to $30,278,570 as of December 31, 2025, from $24,733,636 in 2024.
• Cash on hand remains critically low at $1,804 as of December 31, 2025.
• The company fully impaired its $4,518,127 investment in LTB Management, LLC due to negative projected cash flows.
• A one-time adjustment of $1,930,000 was made to lease-related rent expense due to a clarification in lease terms with Formosa Mountain Ltd.
• All outstanding convertible notes were past their maturity dates as of December 31, 2025, incurring an accrued penalty liability of $735,002.
• The company's subsidiary, 2323414 Alberta Ltd., was in default of payment obligations under a security and royalty agreement with Koze Investments LLC as of December 31, 2025.
• The company has not paid any insurance premiums since early 2024, resulting in lapsed coverage and exposure to uninsured losses.
• Outstanding payables include $549,780 to Steven Barber, $34,530 to Deloitte LLP, $931,571 to former executives (who are also suing for $3M compensatory and $3M punitive damages), and $218,882 to Astor Street LLC (which has obtained a default judgment and taken steps to seize assets).
• The company identified a material weakness in its internal control over financial reporting as of December 31, 2025, due to management and staff turnover and inconsistent record-keeping.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to a history of losses, need for additional financing, and a significant working capital deficit.
• The company's ability to obtain financing is uncertain, and future equity or debt issuances could significantly dilute existing shareholders.
• Convertible notes are in default, and associated penalty provisions may adversely affect liquidity and financial condition.
• The company is reliant on retaining appropriate licenses from Health Canada to produce and sell cannabis products, with potential adverse impacts if licenses are not renewed or are revoked.
• Changes in Canadian laws, regulations, and guidelines, particularly regarding the evolving cannabis market, could materially affect business operations and financial results.
• Inability to successfully develop, manufacture, and distribute products, or achieve a low-cost structure, could prevent profitability.
• There is no assurance of generating sufficient and sustainable revenues, and operating results are expected to fluctuate significantly.
• Failure to effectively manage growth and operations, particularly with planned expansion into the EU and Israel, could materially and adversely affect the business.
• Significant competition from companies with greater financial and other resources poses a substantial obstacle to growth plans.
• Dependence on key personnel, including the CEO, technical experts, and sales personnel, makes the company vulnerable to their loss.
• Inability to keep up with rapid technological changes and timely innovations in the cannabis market could negatively affect the business.
• Exposure to significant currency exchange fluctuations between USD, CAD, and EUR could materially impact financial condition.
• Risk of product recalls due to defects, contamination, or inadequate labeling, which could lead to unexpected expenses, lost sales, and regulatory scrutiny.
• Changes in product specifications and regulatory standards, such as THC levels, could reduce inventory recoverability and increase costs.
• Reliance on key inputs like water and utilities, and a single production facility, makes the company vulnerable to supply interruptions or disruptions.
• Potential liability claims for damages and expenses may not be covered by insurance, as current coverage has lapsed since early 2024.
• Agricultural risks inherent in cannabis cultivation, such as insects and plant diseases, could materially affect production.
• Reliance on third-party distribution services carries risks of supply delays, reliability issues, and security breaches during transport.
• Vulnerability to cyber-attacks and security breaches of IT systems, electronic documents, and data storage, which could harm reputation and operations.
• Ongoing legal proceedings, regulatory disputes, and governmental inquiries could result in significant expenses, divert management attention, and materially harm the business.
• Early-stage research on cannabis benefits and efficacy means future studies could draw negative conclusions, impacting demand for products.
• Regulatory restrictions on marketing and sale of cannabis products in target markets (EU, Asia) could limit market penetration and profitability.
• Negative publicity or consumer perception regarding cannabis products could materially affect demand.
• Regulatory scrutiny of the cannabis industry may negatively impact the ability to raise additional capital.
• A limited and volatile public trading market for common shares, categorized as penny shares, restricts shareholders' ability to buy and sell.
• Lack of certain corporate governance measures, not being listed on a national exchange, may offer shareholders more limited protections.
• The board's authority to create new series of preferred shares without shareholder approval could adversely affect common shareholders' rights.
• Current directors, executive officers, and preferred shareholders beneficially own or control 30.7% of common shares on a fully diluted basis, allowing them significant control over corporate actions.

Future Outlook

The company plans to increase its cannabis production capacity by expanding from six to ten growing rooms and opening a second drying and packing room over the next one to two years. It also intends to build a sales network in Germany and Israel and apply for European Union Good Manufacturing Practices (EU-GMP) certification to reduce costs and shipping timelines. Management expects operating expenses to increase over the next twelve months to support development activities.

Management Comments

• "Our ability to continue as a going concern is dependent upon our ability in the future to grow our revenue and achieve profitable operations and, in the meantime, to obtain the necessary financing to meet our obligations and repay our liabilities when they become due."
• "Managements plans to mitigate this uncertainty involve securing additional capital in the short term primarily through sales of common shares or other instruments."
• "Given the Company's classification as a penny stock traded on the OTC Markets, its constrained liquidity and solvency position, and the limited availability of third-party financing, management expects that any significant additional funding will most likely need to be sourced from related parties."
• "Management concluded, during the year ended December 31, 2025, that the Company's internal controls and procedures were effective to detect the inappropriate application of U.S. Generally Accepted Accounting Principles (US GAAP)." (Note: This statement is contradicted by the later disclosure of a material weakness in Item 9A and the CEO/CFO certifications.)
• "Management has identified deficiencies in operating effectiveness that, in combination, represent a material weakness in internal control over financial reporting. Due to management and staff turnover in the prior years, accurate information and records were not consistently maintained within our records and there were instances where documentation to support certain transactions was difficult to obtain or unobtainable."

Industry Context

StockSavvy.ai notes that CannaPharmaRx operates in a highly regulated and competitive global cannabis market. The company's focus on expanding into European markets like Germany and Israel aligns with broader industry trends of internationalization, particularly as more countries legalize or expand medical cannabis programs. However, the 'Cannabis Report' highlights persistent challenges in the Canadian market, such as the entrenched illicit market and high excise taxes, which could impact domestic operations and profitability. The need for EU-GMP certification is a standard requirement for European market access, indicating the company is pursuing necessary compliance but faces a competitive landscape with many well-resourced players.

Comparison to Industry Standards

• The company's average selling prices per gram in CAD (e.g., Germany: 2.05 premium, 1.6 medium; Israel: 2.0 premium, 1.6-1.8 medium) are in line with general market pricing for dried cannabis flower, with higher THC batches commanding premium prices.
• The requirement for EU-GMP certification for European market access is a standard industry benchmark for medical cannabis producers aiming for international distribution, which the company is actively pursuing.
• The company's reliance on related party financing and its 'penny stock' classification on the OTC Markets, with relegation to the expert market, indicates a significant deviation from the financial stability and market access typically enjoyed by larger, more established cannabis industry players like Canopy Growth or Tilray Brands, which have broader market listings and access to diverse capital sources.
• The identified material weakness in internal controls over financial reporting suggests a deficiency in corporate governance and operational maturity compared to global benchmarks for publicly traded companies, which typically maintain robust internal control frameworks to ensure reliable financial reporting.

Management Changes

Corporate Governance

Legal Proceedings

• Reviewing potential claims against Steven Barber for default of a Consulting Agreement, with an outstanding payable of $549,780 as of December 31, 2025.
• Deloitte LLP filed a civil claim on July 18, 2024, alleging breach of contract and seeking recovery of $34,530 for services rendered.
• Former executives John Cassels and Andrew Steedman filed a lawsuit seeking $3 million in compensatory damages and an additional $3 million in punitive damages for wrongful termination and unpaid compensation. An accrual of $931,571 for unpaid salaries is maintained.
• Astor Street LLC obtained a default judgment for CAD $314,273 in March 2023 on promissory notes and took steps to seize company assets on September 30, 2025. The amount payable is $218,882 as of December 31, 2025.
• The company's subsidiary, 2323414 Alberta Ltd., was in default of payment obligations under a security and royalty agreement with Koze Investments LLC as of December 31, 2025, with Koze agreeing to forbear from exercising its rights until May 31, 2026.

Related Party Transactions

• Revenue of $394,633 in 2025 (down from $770,265 in 2024) was recognized from D.N.S. CANTEK 2019 LTD (Cantek), an Israeli limited corporation owned by Koze Investments LLC, for which Mr. Tal serves as a financial advisor.
• Lease expense of $1,073,328 in 2025 was incurred with Formosa Mountain Ltd., which became a related party on March 11, 2025, upon the appointment of its manager, Elliot Zemel, as a director.
• Rent expense of $2,124 in 2025 (down from $4,381 in 2024) was paid to a company affiliated with Richard Orman, former chairman of the board, for office space.
• Marketing expense of $71,287 in 2025 was incurred with Sky Home Services LLC, a company managed by Mr. Tal.
• Professional fees of $203,727 in 2025 were paid to Invictus Accounting Group LLP, where CFO Oliver Foeste is the Managing Partner.
• Professional fees of $56,107 in 2025 were paid to Fabian Vancott, a law firm where director Anthony Panek is a partner.
• Royalty expense of $303,525 in 2025 was incurred with Koze Investments LLC under a security and royalty agreement entered into on March 17, 2025.
• Interest expense of $1,850,868 in 2025 was incurred on promissory and convertible notes with Mr. Tal, Koze, and Formosa.
• Imputed interest expense of $490,630 in 2025 was recognized on promissory and convertible notes with Mr. Tal, Koze, and Formosa due to debt modifications.
• A one-time other expense of $1,930,000 in 2025 was recorded for a lease-related rent adjustment with Formosa.
• Total related party liabilities increased significantly to $22,358,446 as of December 31, 2025, from $3,597,639 in 2024.
• As of December 31, 2025, $4,283,706 was payable to Formosa for outstanding lease payments, with $1,037,180 in accrued interest on these unpaid payments.
• Loans payable to related parties totaled $13,116,485 as of December 31, 2025, including significant balances to Koze ($11,000,406) and Mr. Tal ($754,218).
• Koze made direct payments of $2,086,675 to the company's suppliers and received $819,867 directly from customers in 2025.
• An obligation to issue an additional 333,336 Series C preferred shares to Mr. Tal and Koze, valued at $2,166,681, exists as of December 31, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk from potential future equity financings, as well as a highly illiquid market for their shares and substantial doubt about the company's ability to continue as a going concern.
• Creditors, particularly related parties like Koze, Mr. Tal, and Formosa, hold a substantial portion of the company's liabilities and have taken steps such as security interests and forbearance agreements due to payment defaults, indicating high credit risk.
• Employees may face uncertainty due to the company's financial distress and reliance on related party funding, although the company plans to retain additional full-time employees with increased production capacity.
• Customers, particularly in the EU and Israel, may experience disruptions if the company fails to achieve EU-GMP certification or if its single production facility faces operational issues.
• Suppliers face payment risk, as evidenced by Koze making direct payments to the company's suppliers, indicating the company's inability to pay directly.

Next Steps

• Increase the number of growing rooms from six to ten over the next one to two years.
• Open a second drying and packing room over the next one to two years.
• Build and develop a sales network in Germany and Israel.
• Apply for European Union Good Manufacturing Practices (EU-GMP) certification.
• Secure additional capital through debt financings and/or equity financing to support ongoing operations and working capital needs.
• Develop and implement remediation plans to address the identified material weakness in internal control over financial reporting.
• Continue reviewing claims against Steven Barber and assessing the validity of Astor Street LLC's default judgment.
• Continue discussions with Dominic Colvin regarding his disputed claim for unpaid salary and expenses.
• Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.

Key Dates

Recommendation

A seasoned investor would issue a 'strong sell' recommendation due to the company's severe financial distress, evidenced by a widening net loss, critically low cash balance, and a substantial working capital deficiency. The explicit 'going concern' doubt, coupled with heavy reliance on related party financing, multiple defaults on debt and lease obligations, and ongoing legal proceedings, indicates an extremely high-risk investment. Furthermore, the identified material weakness in internal controls over financial reporting raises serious concerns about financial integrity and operational oversight. While revenue increased, the overall financial health and operational stability are deteriorating, making the stock highly speculative with a significant risk of complete loss.

Keywords

Cannabis Cultivation, Medical Cannabis, Canada, SEC Filing, 10-K, Financial Performance, Going Concern, Liquidity, Working Capital, Net Loss, Related Party Transactions, Debt Default, Internal Controls, EU-GMP, Cannabis Regulation, OTC Markets, CPMD