Zenabis Archives - Green Market Report

Debra BorchardtDebra BorchardtNovember 25, 2019
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8min6150

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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4min18140

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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5min9720

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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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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