RYTHM, Formerly Agrify, Is a Horrible Cannabis Stock

I introduced this company on this blog in May, when it was known as Agrify, calling it a horrible stock. I don't always get my stock calls right, and often the timing is poor, and the stock then was $24.01. Now it is $31.00. The good news for you is that if you held this stock then, it is higher now. The good news for me is that I wrote it up in Seeking Alpha on September 9th, when the stock was near $40,, warning readers to avoid RYTHM (RYM). Here is the summary from that article:

I reviewed Q2 on this blog on 8/13, which was ahead of the Seeking Alpha write-up, and today I want to review it after their Q3, which was reported on 11/7. Again, RYM is not on my Focus List at 420 Investor.

Q3 Was Not Impressive

The tools for analyzing the quarter are the press release and the 10-Q. The timing of these wasn't announced in advance, but they were on time (due by 11/14). There was no conference call.

Revenue was only $4 million, but it did grow 98% from Q2. The operating loss of $8.9 million was quite large, a bigger loss than the $6.8 million in Q2. More revenue is good, but more losses is alarming when that happens. The press release said that there was $35.6 million cash at the end of the quarter, so they can afford losses of this magnitude for another year. There was $41 million at the end of Q2.

The SEC filing confirms these numbers but gives more information. It confirms that there are only 2 million shares outstanding as well as all the additional potential shares that the press release revealed. These extra shares include 7.6 million warrants and 6.2 million shares from convertible notes, which I discuss below. The warrants are exercisable at $7.30, far below the current price. The press release doesn't include the RSUs that are outstanding (82K).

The balance sheet in the 10-Q shows that equity (assets minus liabilities) has plunged from the year-end level of $28.0 million to just $11.7 million. Subtracting goodwill of $9.7 million and intangibles of $61.5 million, tangible equity is -$59.5 million. Total liabilities of $103.4 million include $22.1 million of current liabilities (due before 9/30/26), which is well below the current assets of $43.9 million. The largest liability is the $82 million in debt to Green Thumb Industries (GTBIF).

The debts of the company include $82 million in convertible notes held by GTI and $8 million held by others. The convertible notes have been issued three times and have exercise prices of $3.16 for $10 million issued in November 2024, $23.53 for $30 million issued this May and $29.48 for $50 million issued in August. The stock is currently above all of these conversion prices.

Looking at the income statement, the company breaks its revenue into two portions: GTI licensing revenue and also non-licensing revenue (hemp-derived THC products):

Looking at the non-licensing revenue, it had a gross margin of 24.0% in Q3 and has been 23.4% year-to-date. The massive spending is related primarily to sales and marketing expenses for the THC products.

The company's operations have burned $20.5 million during 2025. The operating cash flow was -$5.4 million in Q3 compared to -$8.4 million in Q2. This is improvement, but short of generating cash.

Why RYTHM Sank

RYM has dropped a lot recently, but it has been all over the place over the past year:

The volume was very large a year ago, when Green Thumb Industries was initially taking over the company, which was then Agrify. I discussed this in my newsletter at New Cannabis Ventures on 11/21, calling it a silly cannabis stock move that GTI was making when Agrify was at $38.76. Since then, the stock has traded as high as $84 and as low as $13, but the volume has dropped a lot. Over the past 30 days, RYM has averaged 22K shares of trading per day. The dollar volume is still relatively high, and RYM remains in the Global Cannabis Stock Index.

The stock was hit the day after it reported, which was very early last Friday. The large decline Monday was due to a surprise attachment to the Senate resolution to re-open the federal government, a bill that passed 60-40 yesterday. The bill, which needs to pass the House of Representatives, outlaws a lot of hemp-derived products, like the THC beverages that RYM sells. The bill attempts to overcome the legalization of hemp from the Farm Act of 2018 and will kick into place a year after it becomes law.

The Valuation Remains High

Figuring out the value of RYM is not easy! Yes, there are 2.04 million shares, which gives it a market capitalization at $31 of $63.2 million. But, one needs to calculate the share-count if the convertible notes are converted and the warrants if they are exercised. The bad news is that these would ad a lot of shares (13.9 million with the small amount of RSUs included). This would boost the share-count to about 16 million and give it a market-cap of $496 million. The good news is that it would give RYM a lot of cash, boosting it by $55.5 million from the warrant exercises to $77.6 million for what would be a debt-fee company. The enterprise value, then, would be about $418 million.

The enterprise value can be compared to projected adjusted EBITDA, but there are no estimates. The company does not provide an outlook either. The market cap assuming warrant exercise and debt conversion would be compared to a tangible book value of $86 million. 5.8X tangible book value is not a killer, but it is not good for a cash-burner.

Conclusion

I like Ben Kovler, who leads GTI and RYM, but I don't like what he is doing here. The stock has dropped due to fears that THC beverages will be outlawed in a year, and that may or may not happen. The stock could rally a bit potentially, but it looks quite expensive to me. If the price drops, its debt is really debt to a great extent, and the company is not even close to being profitable. I remain quite negative on RYTHM, Inc.