Zenabis Archives - Green Market Report

StaffNovember 1, 2022

The Daily Hit is a recap of cannabis business news for Nov. 1, 2022.

ON THE SITE

New York Regulators Roll Back Cannabis Testing Standards

New York cannabis regulators on Tuesday took a major step in easing testing lab safety standards for the upcoming recreational marijuana market, apparently in response to industry pressure regarding contamination thresholds. The Office of Cannabis Management notified licensed growers via email on Tuesday that “the Office has updated its Laboratory Testing Limits to remove the pass/fail limits” for bacteria, mold, and yeast. Read more here.

Nevada Receives 100 Cannabis Lounge Applications, Predicts Opening Early 2023

Nevada has taken another step toward becoming the first state with a solidly functioning cannabis consumption lounge industry that allows businesses both sell cannabis and have visitors smoke on-site. The state Cannabis Compliance Board announced Monday on Twitter that it had received a total of 100 consumption lounge applications before the submission window closed on Oct. 27. Read more here.

Hexo Reports $1 Billion Loss for Fiscal Year 2022

Hexo (Nasdaq: HEXO) reported net revenue for fiscal year 2022 of $191.1 million, up from $123.8 million from the fiscal year that ended July 31, 2021. Total revenue was $265 million, up 53% from the prior fiscal year. The net loss for the full year was an eye-popping $1 billion versus last year’s net loss of $115 million. Read more here.

Sol Global Continues Slow Exit from Cannabis

SOL Global Investments Corp. (CSE: SOL) (OTCPK: SOLCF) did not release any third-quarter revenue figures but instead noted its net losses. For the third quarter, the total loss from investments was $11.2 million versus a gain of $12.5 million for the same period in 2021. The company also reduced its stake in cannabis from 18% to 14% and is instead gravitating to companies like electric motorcycle company Damon Motors and robotic delivery company Kiwi Campus. Read more here.

Avant Brands Bids to Buy Flowr Corp. Subsidiary out of Bankruptcy

1000343100 Ontario Inc., of which Canadian cannabis producer Avant Brands Inc. (TSX:AVNT) (OTCQX:AVTBF) owns 50% of the issued and outstanding shares, has entered into a stalking horse purchase agreement to acquire all of the issued and outstanding shares in the capital of The Flowr Group Inc., a subsidiary of The Flowr Corp. A stalking-horse bid is the initial bid on the assets of a bankrupt company. Other buyers can submit competing offers following a low-end stalking horse bid. Read more here.

Cannabis Activists Push for Psychedelics Renaissance

As the psychedelics industry’s disagreements with the federal government on a variety of issues continue to rage, the fight to make things right between the citizens of this country and their duly-elected officials over a federally illegal plant has been taken up by some of the same activists who led the charge for cannabis. Read more here.

IN OTHER NEWS

SNDL Acquires Zenabis Business

SNDL Inc. (Nasdaq: SNDL) announced today that, in the context of proceedings pursuant to the Zenabis Group’s filing under the Companies’ Creditors Arrangement Act (Canada), it has successfully closed its acquisition of the Zenabis Business, pursuant to an approval order of the Québec Superior Court. Read more here.

Virginia

Marijuana remains in a legal gray area in Virginia 16 months after the state legalized the possession and use of marijuana for recreational purposes. But the state has not established a legal means of acquiring the product for nonmedicinal uses. Read more here.

Massachusetts

When Massachusetts lawmakers passed a package of reforms to the state’s marijuana business laws over the summer, their intent seemed clear: To crack down on municipalities charging cannabis operators unjustified “impact” fees, which are ostensibly meant to offset the negative effects of a marijuana business. But now, with the law scheduled to take effect next week, there is widespread disagreement over its implementation — and a likelihood that many cities and towns will for the time being continue to collect impact fees that exceed the new legal limits. Read more here.

Debra BorchardtNovember 1, 2022

Hexo is completely out of Zenabis.

Debra BorchardtJune 17, 2022

HEXO Corp. (NASDAQ: HEXO) acknowledged today that its wholly-owned subsidiary, Zenabis Global Inc. has filed a petition with the Superior Court of Québec for protection under the Companies’ Creditors Arrangement Act in order to restructure their business and financial affairs. CCAA is basically the Canadian version of bankruptcy.

Hexo said that the CCAA petition is limited to the Zenabis Group and neither HEXO Corp. nor any of its subsidiaries, other than the members of the Zenabis Group, are petitioners or parties to the CCAA Proceedings.

In February 2021, Hexo bought all of Zenabis’ issued and outstanding common shares in an all-share transaction valued at approximately $235 million. The argument for buying Zenabis at the time was that the two could save $20 million in synergies. It would strengthen Hexo’s domestic brands and give them a foot inside the European markets. It would also give Hexo access to Zenabis’ cultivation facilities. Hexo did note in its latest earnings that third-quarter 2022 net revenues doubled when compared to the third quarter of 2021 as the result of the accretive sales contributed by the acquisitions of Zenabis Global Inc. and Redecan (acquired Q4’21 and Q1’22, respectively).

Hexo was already in trouble itself and last October management gave investors a reality check warning about its senior secured convertible notes issued on May 27, 2021. In a statement, Hexo said, “While there exists a risk that significant cash outflows may be required over the next twelve months under the terms of the Senior Secured Convertible Note, the company has been working with the Holder to renegotiate the terms of the Senior Secured Convertible Note.” Then Tilray (NASDAQ: TLRY) came to its rescue when it said that it would buy Hexo’s remaining $193 million senior secured convertible note. The deal was expected to close by the end of May 2022. The Note will be amended to include conversion rights at a price of C$0.85 per Hexo Share, which would allow Tilray Brands to acquire a significant equity ownership position in Hexo and participate directly in its growth opportunities.

Just this week though Tilray changed the terms of the deal and bought Hexo at a lower price. Perhaps it saw the trouble at Zenabis and decided the price needed to be adjusted? Tilray stock was down slightly on the news of Zenabis.

Debra BorchardtApril 1, 2021

Zenabis Global Inc. (OTC: ZBISF) announced its financial results for the year and quarter ending December 31, 2020. Zenabis reported that net revenue for the quarter decreased by 16% sequentially from $19 million in the third quarter to $15 million in the fourth quarter. It was an improvement over 2019’s fourth-quarter revenue of $10.9 million. The company said the drop was due to decreased wholesale bulk sales to some export markets which were temporarily delayed due to regulatory changes, partially offset by an increase in recreation sales.

The company reported that its consolidated net loss from continuing operations for the quarter totaled $11.4 million or $0.01 per share, fully diluted, compared to $16.6 million or $0.03 per share, fully diluted, in the third quarter and $45.8 million or $0.18 per share, fully diluted, in the fourth quarter of 2019. Consolidated net loss for the quarter totaled $30.1 million or $0.05 per share, fully diluted versus $98.7 million or $0.34 per share, fully diluted, in the fourth quarter of 2019.

Full Year Results

For the full year 2020, Zenabis reported consolidated net revenue increased 95% to $59.3 million from $30.4 million in 2019. The loss from operations was trimmed to $2.3 million versus $59.2 million in the prior year. The consolidated net loss from continuing operations totaled $54.9 million or $0.10 per share, fully diluted, compared to $72.6 million or $0.30 per share, fully diluted, in 2019. The consolidated net loss for 2020 totaled $70.5 million or $0.13 per share, fully diluted, compared to $127.0 million or $0.53 per share, fully diluted, in 2019;

Shai Altman, Chief Executive Officer of Zenabis said, “We are pleased to report that Zenabis has completed a successful second year of operations with substantial growth in revenue and a much-improved balance sheet. Net revenue increased 95% year-over-year with growth across all sales channels. Sales into the Canadian recreational market grew 78% as the recreational market grew during the year, but more importantly, the company’s market share increased from 1.0% to 1.7%. Sales in the wholesale bulk channel also grew substantially by 242% year-over-year, due in large part to the Company’s entrée into export markets, notably Israel and Australia, during the year.”

He continued, “The cost reduction actions undertaken in the first quarter of the year and the continued focus on operational efficiency and excellence resulted in a 51% decrease in operating expenses in 2020, excluding the impact of impairment losses recorded in 2019. Overall, the growth in revenue and the reduction in costs resulted in Zenabis recording adjusted EBITDA for the year of $3.5 million compared to negative $38.7 million in 2019.”

Improvements To The Balance Sheet

During the year, Zenabis sold the non-core assets of Bevo Farms Ltd. and the Zenabis Delta facility. Overall, the company said it was able to reduce its loans and borrowing during the year by 57% or $88.2 million from $153.9 million to $65.7 million.

Outlook

Zenabis believes that the Canadian recreational market has opportunities for continued growth in 2021, with the continued addition of retail stores throughout the country, providing increased access to cannabis products in each province. Additionally, the increasing availability of derivative products is also expected to significantly expand the Canadian adult-use recreational market. Zenabis said it believes that shipments will recommence in the second quarter of the year into export markets as the Company addresses the new regulatory requirements in those markets that were introduced in the fourth quarter of 2020.

In February, HEXO Corp. (TSX: HEXO; NYSE: HEXO) said it was buying Zenabis in an all-stock deal valued at approximately $235 million

Debra BorchardtFebruary 17, 2021

HEXO Corp. (TSX: HEXO; NYSE: HEXO) is buying Zenabis Global Inc. (TSX: ZENA) in an all-stock deal valued at approximately $235 million. Zenabis had hinted that such a deal was in the making during its fight with Sundial. In January, the company had said it had started talks with another significant licensed cannabis producer, so it seems Hexo was the company. Zenabis stock has jumped over 18% to lately trade at 14 cents. The combined organization would be a top-three licensed producer in terms of combined Canadian recreational cannabis sales.

“We’re thrilled to welcome the Zenabis team into the HEXO family. Zenabis has built solid relationships and they share HEXO’s vision of bringing exceptional branded cannabis experiences to adults everywhere, in Canada and abroad” said Sebastien St-Louis, CEO and co-founder of HEXO Corp. “We are proceeding with this transaction because we believe it should be accretive for our shareholders, and it also positions HEXO for accelerated domestic and international growth while supporting near-term requirements for additional licensed capacity. HEXO’s growth strategy includes expanding our global presence, and this acquisition is an important step in that direction.”

HEXO estimates that the combined entity may realize annual synergies of approximately $20 million within one year of close, through cost of goods reductions, additional capacity utilization in HEXO’s Belleville Centre of Excellence and selling, general and administrative savings, which, if realized, should allow HEXO to continue its path towards positive earnings. The combination would give HEXO access to licensed capacity to produce approximately 111,200 kg of additional high-quality cannabis annually. It would result in HEXO acquiring two indoor facilities (approximately 635,000 sq. ft.) and access to a 2.1 million sq. ft. greenhouse facility, totalling approximately 2.735 million sq. ft. of near-term cultivation space offering diversified growing and production techniques.

Under the terms of the Agreement, Zenabis shareholders will receive 0.01772 of a HEXO common share in exchange for each Zenabis common share held. The Exchange Ratio implies a premium per Zenabis common share of approximately 19% based on the 20-day volume-weighted average price of Zenabis common shares on TSX and HEXO common shares on TSX as of February 12, 2021. Warrants and incentive securities of Zenabis will be adjusted in accordance with their terms to ultimately become exercisable to receive common shares of HEXO based on the share exchange ratio. The deal was unanimously approved by the board of directors of each of HEXO and Zenabis and Zenabis’ board of directors unanimously recommends that its shareholders vote in favor of the Transaction.

“This is a compelling combination. Our brands and strains strength across Canada, coupled with our international footprint and state-of-the-art low-cost and high-quality cultivation facilities complements HEXO’s business, creating an industry leader. Like HEXO, Zenabis believes that the combination should deliver meaningful synergies, a stronger financial position with increased flexibility, and should position the combined company to meet growing consumer demand on a national and international basis. I believe this transaction is beneficial to our shareholders, customers, partners, and employees. We look forward to working closely with HEXO to complete this transaction,” added Shai Altman, CEO of Zenabis.

Sundial Battle

Zenabis has been fighting with sundial since December 30, 2020, when Sundial said it had made a strategic investment in Zenabis’ senior lender, which Zenabis said was an attempt to coerce Zenabis into being acquired by Sundial. In a statement, Zenabis said, “Prior to Sundial’s acquisition of the Senior Lender, the company had been in late-stage discussions with the Senior Lender relating to the extension of its obligation to repay $7 million of the principal amount of debt on December 31, 2020. Contrary to the discussions with the Senior Lender prior to the point at which it was acquired by Sundial, the Senior Lender substituted the soon-to-be consummated extension with a demand that the $7 million principal repayment be made on December 31, 2020 accompanied by a forbearance agreement.”

Zenabis also said that the forbearance agreement required it to enter into exclusivity arrangements with the Senior Lender in relation to any sale of the company and also required Zenabis to accept significant potential financial penalties in excess of the outstanding balance of the debt owed to the Senior Lender. The company said that none of the alleged defaults are for failure to make payments of principal or interest. In Zenabis’ statement, “The company believes the Senior Lender’s allegations to be spurious and without merit and intends to vigorously defend against what it considers to be an ill-disguised attempt to circumvent a fair and competitive process to acquire the company by improperly foreclosing the equity of the company or compelling Zenabis to enter into a transaction with Sundial.”

StaffJune 19, 2020

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 BorchardtMay 19, 2020

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 Ontario, British 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 BorchardtMarch 31, 2020

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 BorchardtFebruary 19, 2020

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 BorchardtNovember 25, 2019

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.

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