Zenabis Archives - Green Market Report

StaffStaffJune 19, 2020
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4min3770

Columbia Care

Columbia Care Inc.  (OTCQX: CCHWF) said it expects to complete the second tranche of its previously announced $50.0 million financing with the offering of an aggregate principal amount of $15.7 million in 5.00% senior secured convertible notes due 2023. $12.8 million of escrowed funds are expected to close on or by June 22 with the remaining binding commitments closing in early July.

“Columbia Care continues to demonstrate its ability to access the institutional capital markets at attractive terms despite incredibly challenging macroeconomic conditions, validating the confidence that institutional investors have in our company and team,” said Nicholas Vita, CEO of Columbia Care. “Since the start of 2020, including these financings, Columbia Care has raised over US$65 million of new capital, minimizing dilution, enhancing our liquidity position, de-risking our outlook and enabling us to execute on our growth strategy. We will continue to allocate resources to our highest performing markets where opportunities exist to drive incremental profitability and improve our position as the leading nationwide operator. Columbia Care is committed to being a disciplined steward of capital and remains focused on creating shareholder value as we transition to adjusted EBITDA positive in 2020.”

The company said that once it closes the additional $19.7 million, the aggregate financed amount of $54.1 million will exceed Columbia Care’s previously announced target of $50 million. This amount excludes proceeds from the company’s anticipated second and third sale leaseback transactions, expected to close in the third quarter. Also excluded is the company’s previously announced sale of a 10% minority interest in its non-US business to Avalon Pharmaceuticals for $11 million which closed earlier this year and is funding in tranches through the end of the third quarter.

Zenabis

Zenabis Global Inc. (OTC:ZBISF) reported that it has entered into an agency agreement with a syndicate of agents co-led by AltaCorp Capital Inc. and Eight Capital and including Canaccord Genuity Corp., Haywood Securities Inc. and PI Financial Corp. for the sale of up to 157,643,875 Units at a price of $0.13 per Unit for gross proceeds of up to $20,493,704. In addition, Zenabis has granted the Agents an over-allotment option, exercisable in whole or in part, for a period of 30 days following the closing of the Offering, to purchase an additional 15% of the number of Units sold in the Offering. If the Over-Allotment Option is exercised in full, the total gross proceeds to Zenabis will be $23,567,760.

Zenabis said it plans to use the net proceeds of the Offering for general working capital and corporate purposes, the partial repayment of subordinated secured notes, the partial repayment of the Company’s unsecured convertible debentures, the partial or full repayment of it’s $7,000,000 third tranche of senior secured debt and the payment of an extension fee on the remaining balance of Tranche 3, if applicable.

 


Debra BorchardtDebra BorchardtMay 19, 2020
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4min7250

Zenabis Global Inc. (OTC:ZBISF) reported rising revenue in Canadian dollars for the first quarter ending March 31, 2020. Zenabis‘s revenue rose 18% sequentially to $12.6 million and easily surpassing last year’s $4.1 million for the same time period. The net losses dropped dramatically to $1.5 million from the fourth quarter’s net loss of $98 million. The 2019 first-quarter net loss was $7.9 million.

The company attributed the increased sales to provincial customers, and the continued shipments of bulk cannabis for prepaid supply agreements and to other LPs (licensed producers) as well as the company’s focus on higher-value products.

“We are pleased to announce that the transformation of Zenabis continues with the company posting its first-ever EBITDA positive quarter,” said Kevin Coft, Chief Executive Officer of Zenabis. “Cultivation, production and operating costs continue to decrease as we drive efficiencies through all aspects of the Company.  These cost reductions have so far yielded savings of approximately $10 million per quarter while continuing to grow our business. The full benefit of these cost reductions will not be realized until the second quarter of 2020. ”

The company’s cost to internally produce a gram of cannabis sold was $0.63  versus last quarter’s $0.97. The cost of sales and inventory production costs expensed increased to $7.6 million during the first quarter versus $2.0 during Q1 2019 due to increased sales.

Operating expenses for the segment decreased to $7.7 million during Q1 2020 compared to $9.6 million in Q1 2019 due to the cost-cutting measures put in place by the company in addition to capitalizing more costs to inventory upon full utilization of facilities and the implementation of full absorption costing. The decrease gives credence to the effectiveness of the company’s cost-cutting measures as operating expenses have decreased despite the substantially larger cannabis operations in Q1 2020 compared to Q4 2019. Some of these cost-cutting involved laying off employees, which the company said isn’t fully reflected in the first-quarter numbers.

Looking Ahead

Zenabis said it believes that the Canadian recreational market is positioned for continued growth in 2020, with additional retail store openings planned for OntarioBritish Columbia, and other provinces. Additionally, the increasing availability of edible and derivative products is also expected to significantly expand the Canadian adult-use recreational market.

Zenabis also said it has initially focused on two product categories for the recently legalized derivative products: vaporizers and beverages. Initial shipments of vaporizer products occurred in Q1 2020 and Zenabis has continued to supply its cannabis concentrates in the form of vaporizing cartridges designed for use in PAX Era vaporizing devices. Further, Zenabis remains on track to launch cannabis-infused beverages in Q2 2020 with its initial launch of cannabis-infused sparkling water beverages. Additionally, Zenabis has continued to develop and produce in-demand genetic strains as well as focusing on higher THC products that are being sought after by consumers.

Despite the positive outlook, Zenabis also cautioned that it expects to see wholesale prices drop due to competition from the illicit market and additional LP’s rising to their full potential.

The company could not say whether the pandemic would affect it or not at this time.

 


Debra BorchardtDebra BorchardtMarch 31, 2020
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5min11540

Under the cover of darkness Zenabis Global Inc. (TSX:ZENA) delivered its earnings in Canadian dollars. It was 1 am when Zenabis issued its press release reported that its 2019 net revenue was $66.5 million, while its net loss for the year was $127 million or $0.53 per share.

The net revenue did increase 850% over 2018’s $7 million, the net loss for 2019 ballooned from 2018’s net loss of $32.5 million or $0.22 per share. The net losses included non-cash impairment losses of $9.3 million or $0.37 per share. The company said that the cannabis segment increased 316% to $29.1 million from $7.0 million in 2018 and the propagation segment increased to $38.6 million

Zenabis said it was able to realize increases in revenue even with downward pressures on pricing in the adult-use recreational market as well as due to lower per gram revenue from wholesale bulk sales due to increasing demand for its products and the expansion of sales of value-added products such as pre-rolls.

Kevin Coft, Interim Chief Executive Officer of Zenabis, stated, “2019 was a transformative year for Zenabis with the substantial completion of the Company’s facility build-out.  In addition, the Company achieved significant growth in revenue throughout the year and in particular, in the fourth quarter with 49% quarter-over-quarter revenue growth. I am pleased and thankful for the team’s efforts and focus on delivering on our construction and sales results. Zenabis is now a significant licensed producer with Zenabis Atholville being one of the largest indoor facilities in Canada. Although the Canadian recreational market had its challenges, we believe that the continued growth in the Canadian cannabis market remains positive.”

Fourth Quarter

The fourth-quarter net revenue was $17.9 million versus $12.0 million in the third quarter. Zenabis said that the cannabis segment increased 50.1% to $10.6 million from $7.1 million in Q3 2019. Propagation segment increased 55.5% to $7.0 million from $4.5 million in the prior quarter

The fourth-quarter net loss was $98.7 million or $0.34 per share versus the net loss of $5.8 million or $0.03 per share in the third quarter.

Looking Ahead

Zenabis said it believes that persistent competition from the low-cost illicit market, as well as new supply from competitor LPs as their facilities reach full production, is likely to result in declines in the wholesale price of cannabis in 2020 and beyond.

The company has initially focused on two product categories for the recently legalized derivative products: vaporizers and beverages. Initial shipments of vaporizer products occurred in Q1 2020 and have continued to supply its cannabis concentrates in the form of vaporizing cartridges designed for use in PAX Labs Inc.’s Era vaporizing devices. Further, Zenabis remains on track to launch cannabis-infused beverages in Q2 2020 with its initial launch of cannabis-infused sparkling water beverages.

Zenabis cut its overhead by reducing the size of the Vancouver head office and its facilities which has resulted in a cost reduction of approximately $2 million per quarter.  Additionally, construction activities at the Company’s various facilities has been largely completed as have ongoing material capital expenditures.


Debra BorchardtDebra BorchardtFebruary 19, 2020
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5min20642

 Zenabis Global Inc. (TSX: ZENA)  announced details of its cannabis derivative product strategy and execution, including entering into an agreement with a Canadian beverage manufacturer to produce a range of cannabis-infused beverages.

In December 2019, Zenabis signed a definitive agreement with HYTN Beverages Inc. (“HYTN“) to produce a range of cannabis-infused beverages at Zenabis Stellarton. The initial launch of cannabis-infused sparkling water beverages under the HYTN brand is listed with all Zenabis’ Provincial counterparties, with strong indicative demand. The first shipment of the initial four flavors of the cannabis-infused sparkling water beverages expected in Q2 2020.

“We are happy to announce a new addition to the Canadian cannabis 2.0 market. We are working with a partner that has experience successfully formulating new beverage options in the Canadian market. The combination of HYTN’s beverage manufacturing expertise with our high-quality cannabis extracts allows Zenabis to provide consumers with a new line of high-quality cannabis-infused beverages,” commented Kevin Coft, Chief Executive Officer of Zenabis. “Initial indicative demand from our provincial partners is strong and we hope to have these products into their supply chains in Q2 2020. This will make Zenabis one of the first licensed producers to bring cannabis-infused beverages to the Canadian market.”

Zenabis also stated that its Atholville’s extraction lab is currently operating at 400 kg of biomass per month, and is expected to reach a steady state of production in March 2020. The intent is to use cannabis extracts from Zenabis Atholville in Zenabis’s cannabis derivative products once extraction reaches a steady state.

In October, the company reported that it had experienced delays in the packaging ramp-up at both Zenabis Atholville and Zenabis Stellarton which resulted in Zenabis not being able to package and sell all of its cultivated product from August through September; and that Zenabis expected to spend the entirety of its remaining estimated capital expenditure budget Zenabis Langley (as forecast in Zenabis’ MD&A for the period ending June 30, 2019, at $13,700,000) upon completion of Part 2B; as a result, Zenabis expected capital expenditure amounts remaining to spend relating to Part 2C to be over budget (estimated to be $4,000,000).

HYTN is in the process of installing its own beverage production line in Zenabis Stellarton, with the commission expected to be completed by March 2020. Zenabis will supply the requisite cannabis extracts and provide coast to coast distribution with the company’s provincial counterparties. The intent is to launch a series of cannabis-infused sparkling water beverages under the HYTN brand with future beverage products planned to the extent that is justified by market conditions and demand.

Stock Plunge

The stock fell at that time and has never really recovered. In mid-October, the stock was trading at roughly fifty cents a share and it is now trading at roughly nine cents a share. At the time, there were accusations of Zenabis insiders shorting the stock while covering themselves with the rights offering. Stock jocks were specifically pointing to the Twitter account of @rubiconcapital for talking up Zenabis ahead of the offering that prices the rights at 15 cents.

Moving Forward

Despite the rumors, Zenabis is moving forward and has executed its first production run of vape cartridges for the PAX Labs Inc. Era vaporizer device range. The initial run was immediately sold to three provincial partners. The first provincial shipments commenced on 5 February, 2020.

 

 

 


Debra BorchardtDebra BorchardtNovember 25, 2019
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8min9790

The Facilities Are Fully Funded

On Oct. 9, 2019, The Green Organic Dutchman (OTC: TGOD) said in a press release that it was updating the market on credit financing. In the statement, it noted that “The Company may revise the construction schedule for its Ancaster and Valleyfield projects if it is unable to obtain sufficient financing on reasonable terms, within the required timeframe. There can be no assurance that this review will result in the completion of any financing transaction.” Basically, TGOD said it needed money to finish the projects as planned.

However, TGOD had previously issued an investor presentation in which it stated its Ontario projects were fully funded. This did not go unnoticed by shareholders who were surprised to learn that TGOD needed more money to complete its facilities. Then on October 18, just 10 days later,  the company said, “The Ancaster greenhouse is complete, and the Ancaster processing facility is approximately five weeks from material completion.”

On November 13, the company was able to secure financing and said, “A term sheet with an investment fund for a $40 million construction mortgage loan has also been signed, secured on the facilities at Ancaster and Valleyfield.” TGOD said that now it had this money secured, it could complete construction of the processing facility at Ancaster and complete construction of six zones in the Valleyfield hybrid greenhouse and enclose the balance of the facility with the ability to quickly expand production as the market develops.

Can’t Trust

CannTrust (NYSE: CTST) earned the social media moniker “can’t trust” after the company was caught growing plants in unlicensed rooms. This past summer in July, the company conceded that it had plants seized by regulators from five unlicensed rooms. The scandal resulted in a death spiral for the company as it lost its license, saw the CEO resign and at least a hundred workers have been laid off.

Backing up a bit, roughly around May 19 CEO Peter Aceto said the company was on track to meet its production goals. Within six weeks, the company announced that it received a report of non-compliance from Health Canada. Aceto said, “Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward.”

Last month, CannTrust said it planned to destroy about $12 million worth of plants and about $65 million worth of inventory. The company has seemed to clean house and may be able to move one from this “error in judgment,” but so far the market isn’t convinced and the stock is still near its year low of 77 cents.

It’s Worth More

It’s hard to convince investors to buy company stock when the company devalues the price of said stock. Zenabis Global Inc. (TSX:ZENA) (OTC: ZBISF) destroyed the value of its stock after announcing it was going to raise $20.8 million through a rights offering to holders of its common shares of record at the close of business on October 31, 2019. The stock was lately trading at 16 cents, down from its year high of $3.03. At one point in this debacle, the stock traded at one cent.

The company said that part of the strategy was to fend off a hostile takeover, but there didn’t seem to be anyone bidding on the company. Director of Corporate Communications Jonathan Anthony said that the decline in Zenabis stock is “outside our control,” yet the company absolutely trashed the value by pricing the rights at a 70% discount.
The Twitter universe though had another opinion regarding the stock. There are accusations of Zenabis insiders shorting the stock while covering themselves with the rights offering.

Stock jocks were specifically pointing to the Twitter account of @rubiconcapital for talking up Zenabis ahead of the offering that prices the rights at 15 cents. Then, the former CEO and current Chief Facilities Officer, Kevin Coft sold 2.6 million shares right before the rights offering. The company reported its earnings on November 14 but opted to not host a conference call to discuss the earnings with investors.

Our Bad. We Thought It Was Licensed

After acquiring Newstrike Brands, HEXO Corp. learned that there were plants growing in a room called Block B. The room passed inspection by Health Canada and Hexo said Health Canada said nothing in the report gave them cause for concern. However, within days of the closing of its acquisition the company said it became aware of the illegal plants and notified Health Canada. The mistake was blamed on a new software program run by the federal regulator. Still, the plants were destroyed as a result of the snafu.

While market watchers didn’t seem to criticize Hexo in the same manner that CannTrust was criticized, it certainly didn’t help the company. The facility is no longer being used for growing cannabis.

In addition to the bogus Block B plants, in June, Hexo had said it would do $400 million in revenue in 2020 and double net revenue in the fiscal fourth quarter. Just four months later the company instead reported that revenue was $15.4 million a drop from the third-quarter revenue of $15.9 million, so it wasn’t even an increase. The net revenue for 2019 was $59 million making it abundantly clear that $400 million in 2020 is never going to happen and so that number was retracted but not replaced with a new one.


Debra BorchardtDebra BorchardtOctober 24, 2019
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4min24790

Zenabis Global Inc. (TSX:ZENA) (ZBISF) stock plunged 40% on news of the company’s rights offering. Zenabis announced on Thursday that it is looking to raise $20.8 million through a rights offering to holders of its common shares of record at the close of business on October 31, 2019. The stock was lately trading at 23 cents, down from its year high of $3.03.

According to the company statement, insiders of Zenabis have committed to acquire 30% of the common shares available under the Rights Offering for a total of $6.2 million, representing strong participation. The remaining common shares are available for all other shareholders.

Zenabis said it doesn’t need the money right now but that it would be in the best interests of the shareholders to have some cash on hand. The company said the insiders chose to participate versus experiencing more dilution from other investors. However, the statement also said that in August “with the announcement of Zenabis’ additional debt financing, Zenabis announced that is had secured sufficient capital to achieve an annual design capacity of 143,200 kg of dried cannabis and become cashflow positive. At the time, it was the intent of the Company not to raise incremental capital based on then current information.”

The Twitter universe though had another opinion regarding the stock. There are accusations of Zenabis insiders shorting the stock while covering themselves with the rights offering. Stock jocks are specifically pointing to the Twitter account of @rubiconcapital for talking up Zenabis ahead of the offering that prices the rights at 15 cents.

Earlier in the week, Zenabis issued an update on its operations. Andrew Grieve, Chief Executive Officer of Zenabis, said, “We continued to see strong cultivation results in September, with output exceeding our forecast of 1,731 kg by 21.8%. Our Performance Ratio decreased month over month as a result of the significant number of harvests from newly licensed rooms in the month (five of the 10 harvests).” It all sounded very positive.

Then the company said on Thursday, that it experienced delays in the achievement of packaging ramp-up at both Zenabis Atholville and Zenabis Stellarton which resulted in Zenabis not being able to package and sell all of its cultivated product from August through September; and that Zenabis expects to spend the entirety of its remaining estimated capital expenditure budget Zenabis Langley (as forecast in Zenabis’ MD&A for the period ending June 30, 2019 at $13,700,000) upon completion of Part 2B; as a result, Zenabis expects capital expenditure amounts remaining to spend relating to Part 2C to be over budget (estimated to be $4,000,000).

Rights Offering Details

Pursuant to the Rights Offering, each holder of Common Shares will receive one transferable right for each Common Share held. One and a half (1.5) Rights will entitle a holder to purchase one (1) Common Share at a price of $0.15 per Common Share. The Subscription Price is equal to approximately a 73% discount to the volume-weighted average trading price of the Common Shares on the Toronto Stock Exchange for the 5-day period ending on October 23, 2019.

 


Debra BorchardtDebra BorchardtAugust 14, 2019
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5min13000

Zenabis Global Inc. (TSX:ZENA) (OTC: ZBISF) reported that its second-quarter net revenue rose 78% to $25 million from last year’s $4.1 million for the period ending June 30, 2019. The company said that the results were achieved “despite being negatively impacted by temporary price reductions on inventory sold to provincial counterparties designed to help Zenabis to capture a larger share of the recreational cannabis market.” 

The company also delivered a net loss of $18.5 million, or $0.09 loss per common share, compared to a net loss of $4.0 million, or $0.02 loss per common share, for the same time period last year.

The company noted that in a May 30, 2019 press release, Zenabis said that it expected net cannabis revenue to be in the range of $10,000,000 to $12,000,000, but the actual net cannabis revenue for the period was $7,251,860. The company blamed the shortfall on those price cuts which hurt the company by $790,000. Zenabis also said that a $310,000 shipment got delayed due to logistical issues and a third-party provider caused the company to reject or return 554 kg of cannabis. The company said that it has ended this relationship.

The net revenue per gram fell 29% to $4.22 from $5.92 in the previous quarter. The net revenue per gram for cannabis flower, oil and pre-roll sold fell 16% to $4.97 from $5.92. The company said it expects further price declines as competition heats up. 

“We executed at or above plan in the second quarter and, in so doing, continued to make significant progress towards our goal of becoming one of the largest licensed producers of medical and adult-use recreational cannabis in Canada,” said Andrew Grieve, Chief Executive Officer of Zenabis. “Notably, the buildout and completion of our growing facilities has progressed generally on time and on budget. The completion of Zenabis Atholville and Zenabis Langley Site A – Part 1 helped us increase our licensed annual production capacity from 10,200 kg of dried cannabis as at March 31, 2019 to 54,000 kg of dried cannabis today. We are on track to achieve our new target of 143,200 kg of annual cannabis cultivation capacity under our existing capital program.”

Cost per Gram

The company said that in the second quarter of 2019 the cash cost per gram was $0.78 per gram, which is $0.32 per gram lower than Zenabis’ previously announced estimated cultivation cost per gram of $1.10. Zenabis said it now expects its cost of cultivation at Zenabis Langley to be approximately $0.50 per gram. “This is $0.25per gram, or 33%, lower than the $0.75 per gram estimate previously provided by the Company. This cost of cultivation estimate is based on the Company’s estimates for facility staffing costs (inclusive of facility overhead), utility costs and material costs based on Zenabis’ experience at Zenabis Atholville. Zenabis believes this figure indicates the expected cost competitiveness of Zenabis Langley.”

Looking Ahead

Zenabis is forecasting the actual production capacity at Zenabis Atholville to be higher than the originally announced design capacity estimate. “As a result, Zenabis is increasing its annual production capacity estimate for Zenabis Atholville, upon full licensing, to 46,300 kg from 34,300 kg of dried cannabis. As a result of the Zenabis Atholville Capacity Amendment, Zenabis’ target production capacity by the end of the third quarter of 2019 is now 143,200 kg of dried cannabis, a 12,000 kg increase from 131,200 kg previously estimated.”

 

 



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