Zenabis Global Misses Projections Amid Price Cuts

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.”



Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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