GTI Is Good, but RYM Is Bad

Rythm, Inc. (RYM) reported its Q4 today and filed its 10-K for 2025. I shared here how their Q3 was bad and that it was a horrible cannabis stock in November. Since then, it has plunged 44.5% to $17.10. It is still a horrible cannabis stock in my view.

A Look at Q4

The press release pointed to the massive sequential growth in revenue, which was true: Q4 revenue grew 164% from Q3 to $10.7 million, which was up a ton from a year ago (when it was just $18K). Of course, the company has changed a lot over the past year, with the purchase of the brands from Green Thumb Industry (GTBIF) leading to growth in sales. Gross margin soared to 75.5%, but operating expenses soared to $21 million. THE OPERATING LOSS WAS $12.95 MILLION! EPS was -$6.63 per share.

The 10-K breaks down the revenue, with GTBIF representing 45% of the full year revenue. Q4 revenue was $3.66 million for THC beverages, and $7.0 million in licensing revenue. For the year, THC beverages accounted for $9.5 million in revenue, and licensing was $7.8 million. Note that operating cash flow for 2025 was -$23.5 million, with Q4 operating cash flow of -$3 million, negative but much better than it was previously in Q3.

The balance sheet ended with $32.2 million in cash, which was down $35.7 million at the end of September. Equity was reported at $13 million, but the company has Goodwill that totals $9.7 million. Tangible equity, then, is $3.3 million. Debt remains high at $80 million ($72 million held by GTI and related parties), though some of the debt was converted to equity warrants.

A Look at the Chart

RYM bounced of of $14 recently:

The stock looks very beaten up, as it has declined from a 6-month high of $53.65. The chart doesn't excite me at all. the volume was huge in early December, when cannabis stocks were soaring, but the trading volume has been light subsequently. I do see support at $14.

RYM does a lot of business with GTBIF, and GTBIF controls the company. Here is their performance since the end of 2024:

During this time-frame, MSOS has dropped just 1.3%. The Global Cannabis Stock Index has lost 18.3%, slightly less than both of these stocks. I do like GTBIF at its current price of $6.38, though it does have risk in my view.

A Look at RYM Valuation

Shares outstanding are just 2.15 million, so the market cap is only about $37 million, right? NO! One has to look at the warrants, options, RSUs and convertible notes to figure this out. The options are not significant, and there are just 127K RSUs. There are 10.89 million warrants with a weighted average exercise price of $5.08. Many of those have a $0.01 conversion price, and some are higher. The filing does not break down the range of exercise prices. Adding the shares outstanding to the warrants, which are in-the-money and the RSUs, there are effectively 13.6 million shares outstanding. This represents a market cap of $232 million.

With the conversion of the first convertible note into warrants with a $0.01 exercise price, the remaining convertible debt is very far out-of-the-money. There were two issues after that first one, and they are convertible at $23.53 ($30 million) and at $29.475 ($50 million). The enterprise value is market cap plus debt less cash, and the exercise of the warrants would infuse the company with $55.3 million to be added to the cash of $32.2 million. The enterprise value at $17.10 works out to about $225 million.

The price to tangible book is a problem. Adjusting for the warrants (more shares outstanding, but more cash), it works out to $4.29 per share, so the stock is at 4.0X. Given all the debt it has and the negative cash flow, this seems ridiculous. There are no analysts covering the stock, and the company offers no outlook on adjusted EBITDA. In the press release and the 10-K, there was no mention of EBITDA or adjusted EBITDA. Depreciation and amortization were $6.2 million for the year, and interest expense was $3.2 million.EBITDA was negative, and even with some adjustments it remained negative.

In November, THC beverages will become federally illegal, and the company hasn't shared anything about what it plans to do with respect to exiting the market.Ultimately, this company will be just a lessor to GTI of its brands. It has a lot of debt in my view.

Conclusion

I like GTI relative to its peers and have a small position in my model portfolio at 420 Investor. I don't understand what it is doing with RYM, and the THC beverage move has been hijacked by Congress. RYM trades expensively in my view, and I remain negative on the stock.