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.
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.