Executive Summary / Key Takeaways

• Strategic Pivot to Canadian Retail: CordovaCann Corp. (LVRLF) is undergoing a significant strategic reorientation, divesting from its U.S. operations in Oregon and Washington to concentrate on its profitable Star Buds Cannabis Co. retail network in Canada. This move aims to streamline operations and enhance profitability.
• Improved Financial Performance in Canada: Despite a history of losses and a working capital deficiency, the company's Canadian retail segment is demonstrating strength, with increased same-store sales in Ontario and Manitoba and consistent gross margins. Operating activities generated positive cash flow in fiscal year 2024.
• Persistent Liquidity and Going Concern Risks: CordovaCann faces substantial doubt about its ability to continue as a going concern due to accumulated deficits and reliance on external financing. Several promissory notes and convertible debentures are in default, highlighting ongoing capital challenges.
• Operational Technology for Efficiency: The company leverages operational technologies like seed-to-sale tracking software and standardized procedures for its retail stores, contributing to efficient inventory management and compliance, which are critical in the highly regulated cannabis industry.
• Uncertain U.S. Regulatory Environment: The federal illegality of cannabis in the U.S. continues to pose significant risks, including banking challenges and potential tax disadvantages, which underscore the rationale behind the company's recent U.S. market exits.

A Focused Future: CordovaCann's Path Through Cannabis Markets

CordovaCann Corp. (LVRLF) is a Canadian-domiciled company dedicated to building a diversified cannabis products business across North America. Its core strategy has historically encompassed retail, white-label manufacturing, and the development of niche cannabis brands. The company's journey, marked by various corporate reorganizations since its inception as Biolink Corp. in 1997, has culminated in a pivotal strategic shift towards a more focused operational footprint. This reorientation is a direct response to the complex and evolving cannabis landscape, particularly the persistent regulatory ambiguities in the United States.

The broader cannabis industry continues to grow, with over half of U.S. states having legalized medical cannabis, and a federal trend towards non-enforcement despite ongoing federal illegality. This dynamic environment presents both opportunities and significant challenges, including intense competition from larger, better-financed entities that could establish price controls and erode margins. CordovaCann's strategic positioning, therefore, hinges on its ability to carve out profitable niches and optimize its operational model.

Strategic Evolution and Operational Focus

CordovaCann's strategic evolution has seen it establish a presence in key North American cannabis markets. In Canada, the company built a chain of cannabis retail stores under the Star Buds brand, primarily in Ontario and Manitoba. Initial investments included acquiring a 50.10% stake in 2734158 Ontario Inc. in May 2020 for $723,000, later increasing its ownership to 60.45%. This was followed by a 51% stake acquisition in 10062771 Manitoba Ltd. in December 2020 for $150,000 and 6 million warrants. These Canadian retail operations are characterized by "compelling store unit economics, where stores are quickly profitable and have an investment payback of twelve months or less after opening".

In the United States, CordovaCann previously held operations in Oregon and Washington. This included the acquisition of Extraction Technologies, LLC in Washington in February 2021, aimed at providing white-label and branded manufactured cannabis products. An Oregon property was sold in August 2021 for US$2.20 million in a sale-leaseback agreement, with proceeds intended for debt retirement and expansion. However, a significant strategic pivot occurred with the decision, announced on June 30, 2025, to wind down operations in Oregon and Washington. This move allows the company to "concentrate on expanding the profitable retail business in Canada, which is the best use of the Company's time and resources at this time".

The company's three-pronged strategy focuses on Retail, White Label Manufacturing, and Niche Cannabis Brands. While the recent U.S. exits narrow its direct operational scope in manufacturing and brand development in those states, the underlying strategic intent remains. The retail segment in Canada, operating under the Star Buds brand, is designed to integrate into local communities, fostering customer loyalty. The white-label manufacturing and niche brand strategies are intended to leverage diversified production facilities and capitalize on anticipated federal legalization to create national brands, though the geographic focus for these will now be primarily Canadian or in other future U.S. markets should conditions change.

Operational Technology and Competitive Edge

CordovaCann's operational efficiency is underpinned by its use of technology and standardized procedures. The company employs "software... to track cannabis inventory from seed-to-sale". This system is crucial for ensuring compliance with state laws, preventing diversion, and maintaining accurate inventory records. Furthermore, CordovaCann provides its Star Buds retail ventures with "retail store designs and layouts, standard operating procedures, staff training, financing resources and systems support". These standardized operational technologies contribute to consistent customer experiences and efficient store management across its Canadian network.

While the company does not detail proprietary, cutting-edge R&D in areas like advanced cultivation techniques or novel product formulations, its strength lies in the systematic application of operational best practices. This focus on repeatable, efficient retail and processing workflows, supported by robust tracking and management systems, provides a tangible benefit in a highly regulated and competitive industry. It allows for better cost control and scalability within its chosen markets, contributing to the "compelling store unit economics" observed in its Canadian retail locations. The ability to offer "geographically diversified production facilities" (though now with a refined focus post-U.S. exits) also provides a platform for white-label partners to access new markets efficiently.

Financial Performance and Liquidity Challenges

CordovaCann's financial performance in fiscal year 2024 shows a company in transition, demonstrating improvements in certain areas while still facing significant challenges. Revenue for the year ended June 30, 2024, increased to $13.80 million, up from $13.59 million in 2023 and $13.53 million in 2022. This growth was primarily driven by "the increase in same store sales in its Ontario and Manitoba locations during fiscal 2024," even with the closure of Western Canada stores. Gross profit also saw a slight increase to $4.08 million in 2024, compared to $3.86 million in 2023, positively impacted by the closure of unprofitable Western Canada stores. The average monthly aggregate gross margin of the Star Buds Cannabis Co. chain remained strong at 25.9% for the period of January through May 2025.

Operating expenses saw a notable reduction, falling to $4.72 million in 2024 from $6.34 million in 2023 and $6.90 million in 2022. This decrease was largely due to reduced salaries and wages, consulting fees, and office and general costs following the closure of Western Canada retail operations. The net loss for the year significantly improved to $1.28 million in 2024, a substantial reduction from $6.92 million in 2023 and $4.02 million in 2022.

Despite these operational improvements, CordovaCann's liquidity position remains a critical concern. As of June 30, 2024, the company reported a working capital deficiency of $7.42 million, an increase from $6.23 million in the prior year. The company's ability to continue as a going concern is "dependent upon its ability to access sufficient capital until it has stable profitable operations". Historically, cash flow shortfalls have been met through equity issuances, debt issuances, and related party advances. While operating activities provided $1.49 million in cash during fiscal 2024, a significant improvement from prior years, financing activities used $1.10 million during the same period. Several promissory notes, including the 2023 Demand Notes, are in default and due on demand, and convertible debentures are no longer classified as equity instruments due to the company's inability to avoid cash payment obligations.

Competitive Landscape and Strategic Positioning

CordovaCann operates within a highly competitive cannabis industry, vying for financing and investment opportunities against companies that often possess greater financial resources. Direct competitors include larger, more diversified cannabis players such as Canopy Growth Corporation (CGC), Aurora Cannabis Inc. (ACB), Tilray Brands Inc. (TLRY), and Cronos Group Inc. (CRON). While precise market share figures for all niche competitors are not publicly detailed, CordovaCann's strength lies in its focused retail execution and customer loyalty within its Canadian Star Buds network. This allows for potentially stronger customer relationships and better pricing power in its established markets.

Compared to a global player like Canopy Growth, CordovaCann's market reach is more concentrated, potentially leading to greater operational efficiency in its core Canadian markets. However, it lags in global scale and the pace of product innovation seen in companies with extensive R&D budgets. Against Aurora Cannabis, which emphasizes medical cannabis and vertical integration, CordovaCann's retail network offers a distinct consumer-facing advantage. Tilray's aggressive M&A strategy and diversification into adjacent sectors contrast with CordovaCann's more conservative, retail-centric growth, which may yield superior cash flow generation in stable periods but potentially slower overall revenue growth. Cronos Group's lean operational model and strategic partnerships offer flexibility, but CordovaCann's direct retail engagement can foster deeper brand loyalty.

The company's strategic decision to exit Oregon and Washington, announced in June 2025, further refines its competitive positioning by allowing it to "concentrate on expanding the profitable retail business in Canada". This move is a strategic response to the "continued lack of federal regulatory guidance on the cannabis market in the United States". By focusing on its proven Canadian retail model, CordovaCann aims to enhance its competitive ability in a market where its Star Buds brand has demonstrated consistent gross margins and market share gains.

Outlook and Key Risks

Management's outlook emphasizes continued growth in its Canadian retail operations through both new store development and strategic acquisitions. The Star Buds Cannabis Co. stores are "expected to sustain growth throughout 2025," with two stores setting all-time monthly revenue records in May 2025. The company also intends to pursue opportunities in other U.S. states and develop branded products, leveraging its processing and manufacturing platforms to service other brands and intellectual property owners.

However, significant risks persist. The federal illegality of cannabis in the U.S. remains a primary concern. Despite indications from Attorney General Merrick Garland that federal resources may not prioritize prosecutions in states with legalized cannabis, there is "no guarantee that cannabis will be rescheduled federally". Rescheduling, if it occurs, could also lead to "significant, material changes in the federal legal and regulatory framework" that might render current state-based licenses unfeasible. Banking and financial services for cannabis businesses remain challenging due to federal anti-money laundering statutes, impacting the company's ability to conduct transactions.

Furthermore, CordovaCann is likely to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874, potentially subjecting it to taxation in both Canada and the U.S., which "could have a material adverse effect on its financial condition and results of operations". The company's common shares are classified as "penny stock," which may limit liquidity for investors. The need for additional financing is ongoing, and there is no assurance that such capital will be available on acceptable terms. The company also lacks sufficient insurance coverage, which could expose it to substantial liabilities.

Conclusion

CordovaCann Corp. is at a critical juncture, strategically consolidating its operations to focus on its performing Canadian retail assets. The company's recent decision to exit U.S. markets in Oregon and Washington underscores a pragmatic approach to capital allocation and risk management in a fragmented and federally uncertain industry. While historical losses and a persistent working capital deficiency highlight the inherent challenges of the cannabis sector, the improved cash flow from operations and consistent performance of its Canadian Star Buds retail chain offer a tangible foundation for future growth.

The investment thesis for LVRLF hinges on its ability to successfully execute its refined Canadian retail expansion strategy, achieve sustained profitability in this core segment, and effectively manage its substantial debt obligations. The company's operational technology, particularly its seed-to-sale tracking and standardized retail procedures, provides a competitive advantage in efficiency and compliance. However, investors must weigh these strengths against the ongoing liquidity risks, the uncertain U.S. regulatory landscape, and the need for further financing. CordovaCann's long-term success will ultimately depend on its disciplined execution in Canada and its ability to adapt to the evolving North American cannabis market, particularly as federal reforms in the U.S. potentially reshape the competitive dynamics.