Is Decibel Cannabis (CVE:DB) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Decibel Cannabis Company Inc. (CVE:DB) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Decibel Cannabis's Debt?

The image below, which you can click on for greater detail, shows that Decibel Cannabis had debt of CA$37.5m at the end of March 2025, a reduction from CA$40.3m over a year. On the flip side, it has CA$5.68m in cash leading to net debt of about CA$31.8m.

A Look At Decibel Cannabis' Liabilities

We can see from the most recent balance sheet that Decibel Cannabis had liabilities of CA$46.6m falling due within a year, and liabilities of CA$36.6m due beyond that. Offsetting this, it had CA$5.68m in cash and CA$10.7m in receivables that were due within 12 months. So its liabilities total CA$66.9m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$43.3m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Decibel Cannabis would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Decibel Cannabis's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Decibel Cannabis

In the last year Decibel Cannabis had a loss before interest and tax, and actually shrunk its revenue by 9.2%, to CA$93m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Decibel Cannabis produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CA$538k at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. But on the bright side the company actually produced a statutory profit of CA$12m and free cash flow of CA$1.4m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Decibel Cannabis (2 are a bit unpleasant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.