Zacks Investment Research has recently initiated coverage of RYTHM, Inc. (RYM Quick QuoteRYM - Free Report) , assigning the stock an “Underperform” rating. The recommendation reflects serious concerns over the company’s financial health, operational sustainability and legal exposure, even as it seeks growth in the rapidly evolving cannabis and hemp wellness space.

RYTHM enters the public market with a debt-heavy capital structure and limited cash runway. As of the end of the third quarter of 2025, the company carried $90.6 million in debt — most of it in related-party convertible notes — and just $35.6 million in cash. These obligations, some maturing as early as November 2025, introduce considerable refinancing pressure and shareholder dilution risk, particularly given the company’s low share count. 

The company’s income statement paints a similarly challenging picture, as highlighted by the research report. For the first nine months of 2025, RYTHM generated just $6.6 million in revenues but incurred a net loss of $19.7 million. Selling, general and administrative expenses alone were $21.5 million — over three times its revenues — suggesting that the current cost structure is not aligned with revenue generation. Cash burn reached $20.5 million during the same period, a pace that is unsustainable without significant margin improvement or external funding.

In addition to financial constraints, RYTHM faces a host of structural risks. Its revenue base is concentrated among a handful of customers, with one related party accounting for 18% of receivables. This lack of diversification exposes the firm to contract renegotiation risks and payment delays. Compounding these issues are unresolved legal disputes, including claims totaling over $24 million. Outcomes of ongoing lawsuits could further strain liquidity, delay strategic pivots, and increase the company's dependence on costly financing.

Despite near-term turbulence, RYTHM has undertaken a major strategic realignment that may improve its long-run prospects, as outlined in the report. After divesting its cultivation business, the company has repositioned itself as a brand-driven consumer products firm focused on hemp-derived THC beverages and edibles. The acquisition of the Señorita brand and the launch of new products such as the Strawberry Supernova Comets under its “incredibles” line reflect a shift toward capital-light, margin-enhancing segments that can scale nationally through omni-channel distribution.

Moreover, RYTHM is operating in an industry buoyed by strong tailwinds. Legalization of cannabis across more states, growing demand for low-calorie, alcohol-alternative beverages and evolving consumer preferences around wellness are all positive indicators for the company’s addressable market. With a brand portfolio that spans beverages, edibles and wellness products, and retail placement in chains like Total Wine and Binny’s, RYTHM is well-positioned to capture future growth, provided it can navigate its short-term capital and legal hurdles.

RYTHM’s share price has tumbled sharply over the past year. The valuation appears discounted relative to peers in its sector, suggesting that investors are pricing in significant execution risk and the possibility of further dilution. 

While RYTHM's repositioning toward a brand-centric, capital-light model aligns with broader trends in cannabis and wellness consumer products, its high leverage, ongoing losses, legal liabilities and customer concentration present meaningful risks that may outweigh the potential benefits of strategic innovation in the near term. For a thorough analysis, read the full Zacks Investment Research report on RYM.

Read the full Research Report on RYTHM here>>>

Note: Our initiation of coverage on RYTHM, which has a modest market capitalization of $39.2 million, aims to equip investors with the information needed to make informed decisions in this promising but inherently risky segment of the market.