20-F: IM Cannabis Faces Liquidity Doubts Amid German Growth, Israeli Challenges

IM Cannabis Corp. reported a slight revenue increase in 2025, driven by German market growth, but continues to face significant operating losses, liquidity concerns, and geopolitical risks in Israel.

Summary

• Revenue for the year ended December 31, 2025, increased by 1% to $54,731 thousand, up from $54,031 thousand in 2024.
• Operating loss widened to $11,587 thousand in 2025, compared to $10,234 thousand in 2024.
• Net loss for 2025 was $11,750 thousand, a slight decrease from $11,771 thousand in 2024.
• Gross profit increased by 15% to $9,686 thousand in 2025, up from $8,451 thousand in 2024, partly due to a $3,878 thousand inventory write-off in 2024.
• The company had negative cash flows from operating activities of $1,077 thousand in 2024, improving to positive cash flows of $4,716 thousand in 2025.
• Total assets decreased by 19% to $31,736 thousand in 2025 from $39,188 thousand in 2024, primarily due to goodwill and intangible asset impairment totaling $3,484 thousand.
• Total liabilities decreased slightly to $35,351 thousand in 2025 from $36,042 thousand in 2024.
• Working capital deficit amounted to $11,265 thousand as of December 31, 2025.
• The company recorded goodwill impairment of $5,390 thousand in 2025 related to the Israeli Cash-Generating Unit (CGU) and intangible asset impairment of $997 thousand in Germany.
• Revenue from Germany increased significantly to $36,348 thousand in 2025 from $15,508 thousand in 2024, while Israeli revenue decreased to $18,383 thousand from $38,523 thousand.
• The company is actively evaluating strategic opportunities to expand into the U.S. cannabis market, following President Donald Trump's executive order on December 18, 2025, to expedite marijuana rescheduling.
• Engaged SSC Advisors for strategic guidance on U.S. market entry and potential divestitures of German and Israeli businesses.
• The Israeli Ministry of Treasury rejected the Ministry of Economy and Industry's recommendation to impose anti-dumping taxes of up to 165% on Canadian cannabis imports in April 2025, a decision later approved by the Israeli Attorney General in July 2025.
• The company believes it was a Passive Foreign Investment Company (PFIC) for the tax year ended December 31, 2025, and expects to be classified as a PFIC for the 2026 tax year.
• The Israeli medical cannabis regulatory reform, allowing qualified specialist doctors to issue prescriptions without Ministry of Health licenses, was implemented on April 1, 2024, in phases.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging financial report. While German market growth is a positive, persistent operating losses, significant impairments, and high liquidity risk raise substantial going concern doubts. Geopolitical instability and potential regulatory tightening in key markets add to the negative sentiment, despite strategic efforts for U.S. expansion.

Positives

• German revenue increased significantly by $20,840 thousand in 2025, following cannabis legalization in Germany on April 1, 2024, which eased patient access.
• Gross profit increased by 15% in 2025, partly due to the absence of a large inventory write-off seen in 2024.
• Cash flows from operating activities turned positive in 2025, providing $4,716 thousand, compared to a negative $1,077 thousand in 2024.
• The Israeli Ministry of Treasury rejected the imposition of anti-dumping taxes on Canadian cannabis imports, which would have significantly increased costs.
• The company is actively exploring expansion into the U.S. cannabis market, a potentially large new opportunity, and has engaged financial advisors for this strategy.
• The Israeli medical cannabis regulatory reform is expected to enhance patient access and streamline the prescription process.

Negatives

• The company continues to incur significant operating losses, totaling $11,587 thousand in 2025 and $10,234 thousand in 2024.
• An accumulated deficit of $270,210 thousand as of December 31, 2025, and negative working capital of $11,265 thousand indicate substantial doubt about the company's ability to continue as a going concern.
• Significant goodwill impairment of $5,390 thousand in the Israeli CGU and intangible asset impairment of $997 thousand in Germany were recognized in 2025.
• Israeli revenue decreased by $20,140 thousand in 2025, reflecting challenges in product mix, pricing, volume, and cash flow constraints.
• Proposed legislative amendments in Germany, approved by the German Federal Cabinet on October 8, 2025, could significantly tighten medical cannabis prescription and distribution, potentially limiting distribution channels and reducing patient accessibility.
• The company believes it was a Passive Foreign Investment Company (PFIC) for the tax year ended December 31, 2025, and expects to be classified as a PFIC for 2026, which has negative tax consequences for U.S. taxpayers.
• The ongoing geopolitical conflict in the Middle East (Iron Swords War, Operation Rising Lion) has negatively impacted the company's ability to function, affecting employees, supplies, imports, and sales in Israel.

Risks

• Continued significant losses and negative operational cash flows may require alternative financing options, such as offerings of shares, which may not be available on acceptable terms.
• Inability to secure necessary funds could cause significant delays in business objectives or materially adverse effects on financial condition.
• The company may not be able to continue as a going concern due to negative working capital, accumulated deficit, and operating losses.
• Political, economic, legal, social, regulatory, and military conditions affecting Israel and the Middle East could have a material adverse effect on business, results of operations, and financial condition.
• Elevated inflation and rising interest rates could increase input costs and interest expenses, impacting profitability and competitiveness.
• Failure to select appropriate investment candidates or negotiate acceptable arrangements in pursuit of new cannabis industry opportunities could adversely affect the company.
• Unfavorable divestments, or failure to realize anticipated benefits from divestitures, could have a material adverse effect.
• Regulatory authorities in Israel may determine contravention of cannabis regulations, jeopardizing licenses and affecting sales and marketing activities.
• Changes to laws, regulations, and enforcement practices in Israel and Germany, particularly regarding medical cannabis, could negatively affect operations, delay approvals, or impact market development.
• Failure to meet target production capacity due to external factors or unexpected delays in product supply could materially affect business and financial condition.
• Non-compliance with environmental and occupational safety laws and regulations could result in additional costs, penalties, or restrictions on manufacturing.
• Product liability claims, regulatory action, or litigation due to alleged product defects, side effects, or contamination could result in increased costs and reputational damage.
• Theft of products or other security breaches at facilities could lead to significant losses, license revocation, and increased expenses.
• Increased competition from larger, better-financed companies or new market entrants could adversely affect market share and profitability.
• The cannabis industry's rapid growth and consolidation could lead to loss of strategic partners, customers, or market share.
• Reliance on key business inputs (raw materials, utilities) and potential disruptions or cost increases in the supply chain could materially affect operations.
• Inability to attract, develop, motivate, and retain highly qualified key personnel, or failure of key personnel to maintain security clearances, could have a material adverse effect.
• Foreign market participation exposes the company to global capital market volatility, government authorities, and currency fluctuations.
• Failure to effectively manage growth, integrate acquired businesses, or successfully diversify into new business lines could have a material adverse effect.
• Reliance on international third-party transportation services carries risks of delays, damage, and security breaches.
• Strategic alliances may present unforeseen integration obstacles, costs, or may not achieve expected benefits.
• The company's current lack of U.S. operations and potential future entry into the U.S. cannabis market carries significant regulatory and operational risks.
• Management's limited experience managing a U.S. reporting company could lead to inefficiencies and increased costs.
• Risks inherent in the agricultural business, such as pests and plant diseases, could adversely affect cannabis production.
• Competition from illegal cannabis markets could negatively impact business and operating results.
• Negative consumer perception due to scientific research, regulatory investigations, or media attention could harm demand for products.
• Reputational risk to third parties doing business with the company could result in failure to establish or maintain business relationships.
• Failure of IT systems or cybersecurity breaches could adversely impact financial condition, operating results, and reputation.
• Theft of personal information or privacy breaches could have a material adverse effect.
• Price fluctuations of cannabis products, influenced by supply, demand, taxes, and government policies, could significantly affect operating income.
• Fraudulent or illegal activity by employees or contractors could lead to lawsuits and penalties.
• Corruption and anti-bribery law violations could result in severe penalties and reputational damage.
• Failure to design, develop, or maintain effective internal controls may affect the ability to prevent fraud, detect misstatements, and fulfill reporting obligations.
• Judgments against the company in excess of available insurance coverage could have a material adverse effect.
• Inaccuracies in forecasting market conditions could materially affect business and financial condition.
• Catastrophic events, natural disasters, severe weather, and disease could negatively impact business operations and supply chains.
• Inability to effectively enforce security over underlying assets could have a material adverse effect.
• Potential conflicts of interest involving officers and directors could adversely affect company operations.
• Significant sales of listed securities by the company or shareholders could depress the market price and impair capital raising ability.
• Future issuance of additional securities may dilute shareholders' holdings.
• The possible lack of liquidity of securities may cause difficulty for security holders to resell at desired prices.
• Loss of foreign private issuer status or emerging growth company status under U.S. securities laws could increase regulatory and compliance costs.
• Uncertainty regarding enforceability of U.S. judgments against the company or its non-U.S. officers and directors in Israel or Canada.

Future Outlook

The company expects continued regulatory developments in Germany to contribute to increased demand in the medical cannabis market, though the pace and extent of market expansion are uncertain. Proposed legislative amendments in Germany regarding in-person physician consultations and mail-order prohibitions could materially adversely affect German operations. The company is actively evaluating strategic opportunities to expand into the U.S. cannabis market, following President Donald Trump's executive order to expedite marijuana rescheduling, and has engaged financial advisors for this initiative and potential divestitures in Germany and Israel. The company anticipates continued reliance on debt and equity financings to fund operations until sustained profitability and positive operating cash flows are achieved.

Management Comments

• Management is continuously monitoring developments regarding the War and is acting in accordance with the guidelines of the various authorities.
• Management plans to finance its operations through sales of its medical cannabis products in Israel and on a larger scale in the German territory, resulting from Germany's legalization of cannabis on April 1, 2024.
• Management plans to finance its operations through sales of equity and/or raising debts (including shelf registration statement on Form F-3 that was declared effective on July 11, 2025 by the U.S. Securities and Exchange Commission (SEC) and which allows the Company to register up to US$50,000 thousand).
• Management plans to finance its operations through exploring of additional business activities with the goal of enhancing long-term growth opportunities.
• Management believes that the credit risk to cash balances in various bank institutions in Israel and Germany is low.
• Management considers liquidity risk to be high based on the company's working capital position as of December 31, 2025.

Industry Context

StockSavvy.ai notes that the global cannabis industry is undergoing significant regulatory evolution, particularly in Germany with the recent legalization of medical cannabis and ongoing discussions around adult-use. This presents both opportunities for market expansion and risks from potential legislative tightening, as seen with the proposed MedCanG amendments. The U.S. market, while federally illegal, is showing signs of potential federal reform, which IM Cannabis is strategically positioning itself to enter. The Israeli market, while mature, is subject to intense competition and geopolitical instability, impacting supply chains and operational continuity. The anti-dumping investigation highlights protectionist tendencies in some markets, adding complexity for international players.

Comparison to Industry Standards

• The company's gross margin of 18% in 2025 is relatively low compared to established, profitable cannabis companies, which often report gross margins in the 30-50% range, indicating higher cost of goods sold or lower pricing power.
• The negative Adjusted EBITDA of $(3,230) thousand in 2025, a 202% increase in loss from 2024, suggests significant operational inefficiencies or aggressive investment in growth that has not yet yielded positive returns, contrasting with industry leaders who are achieving positive EBITDA.
• The substantial goodwill and intangible asset impairments in 2025, totaling $6,387 thousand, indicate that previous acquisitions or investments, particularly in Israel and Germany, have not performed as expected, a common challenge in the rapidly evolving and often overvalued cannabis M&A landscape.
• The company's high liquidity risk and negative working capital of $11,265 thousand as of December 31, 2025, are below industry best practices for financial health, where companies typically aim for positive working capital to cover short-term obligations without distress.
• The significant shift in revenue from Israel to Germany (Israel down $20,140 thousand, Germany up $20,840 thousand) demonstrates a successful pivot to a growing market, but also highlights the volatility and challenges in the Israeli market, which may be more pronounced than for some local competitors.

Management Changes

Corporate Governance

Legal Proceedings

• **COVID-19 Test Kits Claim (Adjupharm vs. Stroakmont & Atton Trading GmbH)**: Adjupharm filed a claim in November 2021 for approximately EUR 948 thousand. The Stuttgart Court ruled in Adjupharm's favor on April 5, 2023. Stroakmont's appeal was unsuccessful. Stroakmont filed for insolvency, and enforcement is pending the appointment of an insolvency administrator.
• **Uniclaro vs. Adjupharm**: Uniclaro filed a claim in December 2022 for approximately EUR 1,046 thousand for COVID-19 rapid tests. The Regional Court of Hamburg dismissed Uniclaro's lawsuit on April 24, 2024, and sentenced Uniclaro to pay Adjupharm approximately EUR 54 thousand. Uniclaro appealed, but the High Court of Justice of Hamburg dismissed the appeal on January 15, 2026, issuing a default judgment. Uniclaro objected to the default judgment on January 29, 2026, and a new hearing is pending.
• **Focus Facility Planning and Construction Legal Proceedings**: A claim was filed in July 2021 against Focus and its directors for permitting deficiencies. Focus was found liable on December 28, 2023, and paid a fine of $129 thousand in 2024. The facility was closed in June 2022.
• **Canadian Restructuring Proceedings**: Former Canadian subsidiaries commenced CCAA proceedings in November 2022, which terminated on September 14, 2023. The company exited Canadian operations, classifying them as discontinued. Trichome filed for bankruptcy on September 29, 2023. No remaining material liabilities other than tax obligations of approximately $839 thousand.
• **The Regional Labor Court Tel Aviv (Bat Yam) 17419-04-23**: A former employee filed a claim in May 2023. The company filed its statement of defense on April 4, 2024. The claim is at an early stage, and the company is unable to assess the likelihood of an adverse outcome or potential loss.
• **35 Oak Holdings Ltd Statement of Claim**: A claim was filed in November 2023 by MYM Shareholder Plaintiffs against the company and its Board/officers, alleging misrepresentations and claiming approximately $15,000 thousand in damages. The company believes the allegations are without merit and plans to vigorously defend itself. A settlement agreement was approved on December 31, 2025, to pay $90 thousand to MYM Shareholder Plaintiffs for a motion to strike out parts of the claim.
• **Tax Remittance**: The company received excise tax assessments for $319 thousand in October 2023, filed objections, and the Canada Revenue Agency voided the assessments on April 26, 2024, resolving the matter.

Related Party Transactions

• **Management Fee Payable**: Outstanding management fees to an entity controlled by main shareholders amounted to $698 thousand as of December 31, 2025, and $427 thousand as of December 31, 2024.
• **Subleasing Income Received in Advance**: Subleasing income received in advance from an entity controlled by main shareholders totaled $35 thousand as of December 31, 2025, and $30 thousand as of December 31, 2024.
• **Management Fees Charges**: Management fees charged during 2025, 2024, and 2023 were $526 thousand, $481 thousand, and $475 thousand, respectively, incurred indirectly by an entity controlled by the main shareholder.
• **Service Agreement with Relative**: On November 1, 2023, IMC Holdings signed a service agreement with a relative of a main shareholder for strategy and marketing services for NIS 14,000 plus VAT monthly through March 31, 2026.
• **Sublease Agreement**: Income from subleasing a portion of premises to an entity controlled by the main shareholder, based on an agreement executed August 15, 2024, for NIS 17 thousand linked to ICPI plus VAT monthly.
• **Focus Transaction**: On February 26, 2024, IMC Holdings exercised an option to acquire 74% of Focus from main shareholders. On May 26, 2025, the company acquired the remaining 26% from Ewave Group Ltd. (jointly owned by main shareholders) for NIS 818,740, settled by issuing 128,818 Common Shares.
• **Debt Settlement with Mr. Shuster**: On November 12, 2024, the company completed a debt settlement of US$560,000 with Mr. Oren Shuster (CEO and main shareholder) for personal guarantees provided for company loans, issuing 110,576 Common Shares and 152,701 pre-funded warrants.
• **Convertible Debentures Offering Participation**: Mr. Shuster and Rafael Gabay (main shareholders) participated in a non-brokered private placement of secured convertible debentures on May 27, 2025, subscribing for C$260,935.40 and C$260,278.70, respectively.
• **Loan Agreement with Main Shareholder**: During 2025, IMC Holdings entered a loan agreement with the Main Shareholder for NIS 1,750 thousand (approximately $751), accounted for as a capital contribution due to a reduced interest rate.
• **April 2025 Loan from CEO**: On April 29, 2025, Mr. Oren Shuster loaned NIS 1,000 thousand (approximately $375) to IMC Holdings, relying on MI 61-101 exemptions for related party transactions.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from ongoing equity financings and the 20% share reserve under the Equity Incentive Plan. The company's going concern uncertainty and PFIC status for U.S. taxpayers pose substantial risks to investment value. Principal shareholders, officers, and directors hold significant control (23.4% of Common Shares).
• **Employees**: Workforce reductions and layoffs have occurred as part of cost-saving plans. Geopolitical instability in Israel could impact employee availability due to military reserve duty.
• **Customers (Patients)**: In Germany, proposed legislative changes regarding in-person consultations and mail-order prohibitions could limit access to medical cannabis. In Israel, regulatory reforms aim to enhance patient access, but geopolitical events and supply chain disruptions could affect product availability.
• **Suppliers**: The company relies heavily on third-party suppliers for cannabis products, particularly Canadian imports. The anti-dumping investigation, though rejected by the Minister of Treasury, highlights potential risks to import costs and supply stability. Geopolitical events could disrupt supply chains.
• **Creditors**: The company has high liquidity risk and significant financial liabilities, with a substantial portion maturing within one year, raising concerns about repayment ability. Personal guarantees from the CEO for certain loans indicate heightened risk for some creditors.

Next Steps

• Continue efforts for efficiency operations and cost savings during 2026.
• Pursue additional financing alternatives, including equity issuances, convertible instruments, and debt arrangements.
• Monitor developments and policies in foreign markets and assess their impact on operations.
• Continue to enhance cybersecurity protocols and third-party risk management framework.
• The High Court of Justice of Hamburg will appoint a new court hearing to decide about Uniclaro's objection to the default judgment.
• The company plans to vigorously defend itself against the allegations in the 35 Oak Statement of Claim.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by persistent operating losses, a substantial accumulated deficit, and negative working capital, raising significant doubt about its ability to continue as a going concern. While German revenue growth is positive, it is insufficient to offset overall losses and impairments. Geopolitical risks in Israel and potential adverse regulatory changes in Germany add further uncertainty. The continuous reliance on dilutive equity and debt financings, coupled with the company's PFIC status for U.S. investors, makes the stock a high-risk investment with limited upside potential in the near term. Seasoned investors would likely seek to exit or avoid this position until a clear path to sustained profitability and financial stability is demonstrated.

Keywords

Medical Cannabis, Cannabis Industry, SEC Filing, Financial Performance, Liquidity Risk, Germany Cannabis Market, Israel Cannabis Market, Regulatory Reform, Anti-Dumping Investigation, Goodwill Impairment, Intangible Assets, Capital Raise, Related Party Transactions, Geopolitical Risk, U.S. Cannabis Market, PFIC Status, Nasdaq Listing, Supply Chain, Pharmaceutical Distribution, EU-GMP, Cannabis Cultivation, Corporate Governance, Cybersecurity