Executive Summary / Key Takeaways

• IM Cannabis Corp. has achieved a significant financial turnaround, reporting net profit and positive adjusted EBITDA in Q1 2025, primarily fueled by its strategic pivot to the rapidly expanding German medical cannabis market.
• The company's integrated supply chain and operational efficiencies have driven a remarkable 569% revenue increase in Germany in Q1 2025, establishing it as the core growth engine and offsetting declines in the Israeli market.
• Aggressive cost management, including a 53% reduction in operating expenses since 2022, has been instrumental in expanding margins and improving overall financial health.
• IM Cannabis leverages its established regional presence, proprietary breeding techniques, and a unique Israel-to-Germany supply channel to carve out a differentiated position in a dynamic and competitive market.
• While the company anticipates continued robust growth in Germany and improved gross margins, investors should monitor potential risks such as market price compression, the stability of the Israeli market, and ongoing supply chain optimization.

A Strategic Pivot to German Cannabis Leadership

IM Cannabis Corp., founded in 2008 and headquartered in Tel Aviv, Israel, has strategically repositioned itself within the evolving global medical cannabis landscape. The company's core business revolves around the breeding, cultivation, and supply of medical cannabis products in both Israel and Germany. A pivotal moment arrived with the partial legalization of cannabis in Germany on April 1, 2024, which management characterized as a "game changer" for the industry, unleashing "unprecedented growth" at a tremendous velocity. This regulatory shift has profoundly influenced IM Cannabis's strategic direction, prompting a decisive reallocation of resources to capitalize on the burgeoning German market.

The German cannabis market is projected for substantial expansion, with BDSA estimates suggesting total sales could reach approximately USD 1.5 billion in 2024 and grow to about USD 3.7 billion by 2027. This growth is driven by an increasing number of patients, an accessible prescription process, advancements in medical research, and improved pharmacy access. In response, IM Cannabis has intensified its focus on Germany, aiming to capture a significant share of this expanding market. The company has a well-established presence, operating in Germany since 2019, and is recognized as the sixth-largest cannabis distributor among over 60 players.

Technological Edge: Proprietary Breeding and Supply Chain Innovation

While specific research and development metrics are not extensively detailed, IM Cannabis emphasizes "proprietary breeding techniques" as a key competitive advantage. These techniques are designed to enhance product quality, fostering stronger customer loyalty and enabling faster innovation cycles. This qualitative differentiation helps IM Cannabis stand out in medical markets, potentially leading to improved financial outcomes through better capital efficiency and a distinct product offering. This focus on quality through breeding is particularly relevant in a market where product efficacy and consistency are paramount for medical patients.

Beyond breeding, IM Cannabis's operational differentiation lies in its "integrated supply chain." This infrastructure has proven crucial for market penetration and growth, especially in Germany. In Q1 2025 alone, the company's integrated supply chain facilitated the launch of 12 new strains in Germany, which accounted for approximately EUR 3 million, or 39%, of its cannabis FLOWR sales in the region. Furthermore, the company has successfully established a new supply channel from Israel to Germany, leveraging its dual-market presence to ensure a consistent product flow. This operational agility and supply chain integration are vital for sustaining growth in a highly regulated and complex industry.

Competitive Landscape and Differentiated Approach

IM Cannabis operates in a dynamic and competitive environment. In Germany, the market is characterized by weekly changes and the presence of several leading competitors. The company acknowledges an expectation of price compression, a trend observed in other mature cannabis markets, and is actively preparing for this scenario. Despite these competitive pressures, IM Cannabis maintains a strong position due to its "familiar brand" and established relationships with pharmacies and the broader cannabis community, including influencers. The company's strategic approach in Germany is to offer a full spectrum of products, from ultra-premium to mid-to-low market offerings, with a current emphasis on the mid-market.

Compared to larger, more globally diversified players like Canopy Growth Corporation (CGC) and Aurora Cannabis Inc. (ACB), IM Cannabis distinguishes itself through its regional focus and operational efficiency. While Canopy Growth boasts a broader global reach and diversified product lines, IM Cannabis's specialized approach in its core markets allows for greater localized adaptability and potentially more efficient execution. Similarly, against Aurora Cannabis, which emphasizes technological advancements in cultivation, IM Cannabis's strength lies in its nimble operations and effective navigation of regulatory environments. The company's unique position as the only Israeli operator with significant operations in Germany provides a distinct advantage in sourcing and supply.

Financial Transformation: From Efficiency to Profitability

IM Cannabis has undergone a significant financial transformation, culminating in a return to profitability in Q1 2025. This achievement is a direct result of strategic and operational improvements implemented over the past two years.

Revenue Dynamics and Segment Contributions

The company reported total revenues of $12.5 million in Q1 2025, marking a 4% increase from $12.1 million in Q1 2024. This growth was overwhelmingly driven by the German segment, which saw its revenue surge by 569% compared to Q1 2024, contributing an additional $6.6 million. Germany's share of total revenue significantly increased to 62% in Q1 2025, underscoring its role as the primary growth engine. This follows a trend of accelerated growth in Germany throughout 2024, where sales increased by 200% in Q2 2024 compared to Q1 2024, and by 66% in Q3 2024 versus Q2 2024. For the full year 2024, German revenue increased by $10 million, and its share of total revenue in the second half of 2024 reached 40%, up from just 11% in 2023.

Conversely, the Israeli business experienced a 56% decline in revenue in Q1 2025 compared to Q1 2024, a decrease of $6.1 million net. This decline was partly attributed to the cancellation of the Oranim deal, which accounted for approximately $3.5 million of the reduction, as well as the strategic reallocation of resources towards the German market and supply delays. The Israeli segment is now focused on maximizing profitability by concentrating on premium and ultra-premium markets.

Margin Expansion and Cost Discipline

A cornerstone of IM Cannabis's turnaround has been its rigorous cost management and operational efficiency. The company achieved a net profit of approximately $0.2 million in Q1 2025, a substantial improvement from a $6 million loss in Q1 2024. Adjusted EBITDA also turned positive, reaching $0.6 million in Q1 2025, compared to a $2.2 million loss in the prior year period, representing an improvement of almost $3 million. This profitability was underpinned by an 87% improvement in gross margin and a 94% increase in gross profit to $3.4 million in Q1 2025.

The company's operating expenses have seen dramatic reductions, decreasing by 56% in Q1 2025 compared to Q1 2024. This builds on a broader trend of cost cutting, with overall operating expenses reduced by 53% since 2022, from $40 million to $18.7 million in 2024. The operating expense ratio improved significantly to 26% in Q1 2025, an efficiency increase of about 66% compared to Q1 2024 (excluding the one-time Oranim deal cancellation expense). Management has indicated that the gross margins in 2024 were not representative of future expectations due to the clearance of $3.9 million in slow-moving, non-premium inventory throughout the year, with a final $0.7 million cleared in Q4 2024. The company does not anticipate a similar scale of write-offs in 2025 and expects gross margins to be "better than what you see in 2024 for sure."

Liquidity and Capital Strategy

As of March 31, 2025, IM Cannabis held $1.4 million in cash and cash equivalents. The company has actively pursued capital-raising initiatives to support its growth and operations. In July 2025, it successfully closed a private placement offering, raising approximately US$4.1 million. Additionally, a shelf registration statement on Form F-3 became effective in July 2025, allowing the company to offer and sell up to an aggregate of $50 million in securities. The company also secured an immediate liquidity boost of US$1 million from a loan agreement in July 2025. These measures demonstrate a proactive approach to ensuring sufficient capital for its strategic objectives.

Furthermore, the company is in the process of acquiring 100% ownership of its Focus company, a move aimed at clearing inter-company balances and optimizing its financial structure for tax purposes.

Outlook and Risks: Sustaining Momentum

IM Cannabis's outlook is firmly centered on sustaining the momentum generated by its strategic pivot. The company's primary target is to continue executing its strategy, with a clear focus on external growth in Germany while maintaining the operational efficiency and agility achieved through its lean structure.

Forward-Looking Guidance and Growth Drivers

Management anticipates Q1 2025 to be the "best quarter in sales" for Germany to date, driven by its robust and integrated supply chain. The expectation for improved gross margins in 2025, following the clearance of non-premium inventory, provides a positive financial outlook. The company is actively onboarding new suppliers for the German market, with expected results throughout 2025, further bolstering its supply capabilities. In September 2025, the company announced a strategic decision to explore additional business activities, signaling a potential diversification to enhance long-term growth opportunities and shareholder value.

Navigating Market Headwinds

Despite the positive momentum, IM Cannabis faces several pertinent risks. The German market, while growing rapidly, is dynamic and competitive, with management anticipating future price compression. The company is proactively preparing for this, drawing lessons from other markets. The Israeli market presents its own set of challenges; management does not foresee significant growth and expects it to remain "more or less stable" unless regulatory changes occur. The ongoing conflict in Israel has impacted supply chains and contributed to a 10% reduction in medical cannabis patients from July to October 2024, with changes from the July 2024 reform also assumed to be complicating the prescription process. While IM Cannabis successfully regained compliance with Nasdaq's stockholders' equity listing requirement in September 2025, the prior deficiency highlighted the importance of maintaining robust financial health.

Conclusion

IM Cannabis Corp. has demonstrated a remarkable strategic and financial turnaround, successfully pivoting its focus to the high-growth German medical cannabis market. The company's disciplined approach to cost management, coupled with its integrated supply chain and established market presence, has driven a return to profitability in Q1 2025. This strategic evolution, underpinned by proprietary breeding techniques and a unique supply channel, positions IM Cannabis as a specialized and efficient player in a competitive industry.

The path forward for IM Cannabis hinges on its continued execution in Germany, where robust sales growth and anticipated margin improvements are expected to drive financial performance. While the company must remain vigilant against market-wide price compression and the inherent challenges of the Israeli market, its proactive capital management and exploration of new business opportunities suggest a commitment to long-term value creation. Investors will closely watch IM Cannabis's ability to scale its German operations, optimize its supply chain, and leverage its differentiated approach to sustain profitability and expand its market footprint.