Debra BorchardtZenabis 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.
