VANCOUVER, April 29, 2019 /CNW/ - Zenabis Global
Inc. (TSXV:ZENA) ("Zenabis" or
the "Company") is pleased to provide a comprehensive
update on its recent cannabis production figures; the results of
its current growing approach on harvest yield; facility
construction and licensing status; anticipated future harvest; and
latest corporate developments, including management changes. In
addition, the Company has filed the financial statements and
MD&A for Sun Pharm Investments Ltd. ("Sun Pharm", representing
Zenabis' cannabis business prior to the amalgamation with Bevo Agro
Inc.) for the year ended December 31,
2018 on SEDAR.
Highlights:
- Cultivation output increased month over month and outperformed
design capacity by 9% over the six-month period from October 2018 to March
2019;
- The current growing approach is achieving higher yields than
published design capacity at Zenabis Atholville; and
- Construction is progressing on track at Zenabis Atholville and
Zenabis Langley to increase design capacity to at least 131,300 kg
by the end of the third quarter of 2019.
"We are excited to initiate monthly updates on the status of
Zenabis' operations, which we believe is necessary given the pace
of growth and ramp-up," stated Andrew
Grieve, Chief Executive Officer of Zenabis. "Since January,
when Zenabis was created as a result of the amalgamation of
Sun Pharm and Bevo, we have
increased our cultivation design capacity from 7,000 kg to 10,200
kg, submitted license amendments for an additional 13,000 kg of
design capacity at Zenabis Atholville, and intend to significantly
increase our cultivation design capacity to 131,200 kg by the third
quarter of this year. In addition, we are achieving excellent
cultivation results due to the strong leadership of our Chief
Growing Officer, Leo Benne, and the
diligent efforts of the entire cultivation team."
Cannabis Production Summary
For the six months between October
2018 and March 2019, Zenabis'
Atholville facility cultivated and
dried a total of 2,293 kg of cannabis. Production increased
month over month, and the amount harvested exceeded the design
capacity of the flower rooms by an average of 9% over the six-month
period, and an average of 11% over the three-month period from
January 2019 through March 2019 (see table below). Between
October 2018 and March 2019, Zenabis Delta cultivated and dried a
total of 61 kg of cannabis. A month-to-month comparison of actual
harvests compared with harvest forecast based on design capacity
between October 2018 and March 2019 is provided in the table below.
Historical
Harvests - Atholville
|
Oct
2018
|
Nov
2018
|
Dec
2018
|
Jan
2019
|
Feb
2019
|
Mar
2019
|
Total
|
Actual Harvest
Weight
|
237 kg
|
271 kg
|
313 kg
|
474kg
|
480 kg
|
518 kg
|
2,293
kg
|
Design Capacity
Harvest Weight*
|
290 kg
|
257 kg
|
236 kg
|
372 kg
|
495 kg
|
463 kg
|
2,113
kg
|
Difference
(kg)
|
(53 kg)
|
14 kg
|
77 kg
|
102 kg
|
(15 kg)
|
55 kg
|
180
kg
|
Difference (%) –
"Performance Ratio"1
|
(18.3%)
|
5.4%
|
32.6%
|
27.4%
|
(3.0%)
|
11.9%
|
8.5%
|
* The Design
Capacity Harvest Weight is based on the "design capacity" yield
that Zenabis has disclosed to date. This figure was derived
by converting the actual square footage of flower room space and
the forecast canopy for each specific flower room into a kilograms
per room per day figure (the "Design Capacity Yield Per Day") based
on Zenabis' historical yield data at the Zenabis Atholville
facility through September 2018. The Design Capacity Harvest Weight
in the table above is the harvest weight that would have resulted
if the Design Capacity Yield Per Day for a room was multiplied by
the Effective Flower Room Equivalent Days, as defined under
"Performance Ratio."
|
______________________________
|
1To better
reflect the actual performance of its facilities going forward, the
Company intends to report a Performance Ratio, calculated as
follows: after each harvest, Zenabis will calculate the dry weight
cannabis output for each room (the "Total Output"), taking into
account the amount of days in production through a combination of:
(1) the amount of flower room days used (including turnaround time)
for that room; and (2) the amount of flower-room equivalent days
required from other flower rooms in support of that harvest
(together the "Effective Flower Room Equivalent Days"). Zenabis
will then divide the Total Output by the Effective Flower Room
Equivalent Days in order to produce the "Effective Yield Per Day"
for each room, and then divide the Effective Yield Per Day by the
Design Capacity Yield Per Day for each room in order to determine
actual performance versus the Design Capacity Yield Per Day (this
ratio being the "Performance Ratio"). Zenabis believes that the
Performance Ratio will provide investors with the best measure of
actual cultivation performance versus Zenabis' published design
capacity.
|
The design capacity of Zenabis' facilities was calculated and
presented in the Bevo management information circular dated
November 23, 2018, using historical
yield through September 2018
available at that time. Zenabis intends to update and publish an
updated design capacity for each of its facilities when:
- a facility has harvested from all the flower rooms, with the
update at that time based on the most recent performance from each
flower room; and
- again, if required due to significantly different results, when
a facility achieves consistent monthly performance at a level that
is different from its published Design Capacity Harvest
Weight.
Growing Approach
The growing team at Zenabis Atholville – led by Chief Growing
Officer, Leo Benne – utilized an
alternative growing approach for one of the flower rooms at the
facility with the aim of maximizing yield per day. The first
harvest using this approach was completed in late March and yielded
225 kg of cannabis compared with the room's Design Capacity Harvest
Weight of 153 kg, reflecting outperformance of 47%.
Mr. Benne stated, "I am grateful for the diligence of the entire
growing team across Atholville,
Stellarton, and Delta and we look forward to delivering
consistent and healthy cannabis crops from all of our facilities
across Canada."
2019 Full Year Harvest Forecast – Zenabis Atholville and
Zenabis Stellarton
For its existing licensed facilities of Zenabis Atholville and
Zenabis Stellarton (and excluding Zenabis Delta), Zenabis expects
to produce approximately 13,300 kg from April through December of
2019. The following table sets out Zenabis' estimated monthly
harvests for Zenabis Atholville and Zenabis Stellarton for the
remainder of 2019.
Apr
2019
|
May
2019
|
Jun
2019
|
July
2019
|
Aug
2019
|
Sept 2019
|
Oct
2019
|
Nov
2019
|
Dec 2019
|
Total
|
495 kg
|
607 kg
|
668 kg
|
836 kg
|
781 kg
|
1,627 kg
|
2,263 kg
|
2,702 kg
|
3,351kg
|
13,330kg
|
* This forward-looking estimate of
future harvest results is based on the following material
assumptions: (1) Both Zenabis Atholville and Zenabis Stellarton
operate at their published design capacity on a room by room basis;
(2) There is one month of delay beyond the current forecast date
for cultivation commencement at each of the phases 2A, 2B, and 2C
at Atholville; and (3) For each of phases 2A, 2B, and 2C at
Atholville, three days of separation will occur between planting of
each room at the point cultivation commences.
|
Upon receipt of its cultivation license at Zenabis Langley,
Zenabis intends to provide a monthly cultivation forecast for the
Zenabis Langley facility.
Construction Update and Anticipated Harvest Yields
Zenabis Atholville (Indoor)
The 380,000-square-foot Zenabis Atholville indoor facility is
currently licensed to produce cannabis from 136,800 square feet
with a production design capacity of 10,200 kg. Zenabis is in
the process of constructing and licensing additional flower rooms
and support space to expand cultivation capacity in three blocks
divided into "Phase 2A" consisting of 38,100 square feet; "Phase
2B" consisting of 76,700 square feet;
and "Phase 2C" consisting of 118,000 square feet. Specific updates
are provided below:
- Phase 2A and Phase 2B. Zenabis
has submitted license amendments to Health Canada to commence
production in its Phase 2A and 2B
expansion projects, which will expand the facility's design
capacity by 13,000 kg.
- Phase 2C. Room construction is complete for this phase.
Installation of benches, irrigation equipment, HVAC, and lighting
are ongoing. Zenabis intends to submit its license amendment to
Health Canada to commence production in Phase 2C in June or July of
2019.
Zenabis Langley (Greenhouse)
Zenabis is currently converting the first 10 acres of the
greenhouse property ("Site A") following the successful transfer of
all floral and propagation business from Site A to Zenabis
Aldergrove. Drying, trimming and storage room installation is
ongoing. Floor coatings have been completed in one flower room and
most operational support rooms. Security system planning and
installation is ongoing. All other major equipment such as
lighting, heating, HVAC has been ordered, and some lighting and
HVAC equipment has arrived onsite.
Site A is divided into a number of flower rooms, which are
similar to those in an indoor facility, but much larger in size.
Construction of the flower rooms is expected to be completed
between June and August, with the first phase of construction
completed by the end of June, and construction substantially
complete for all rooms by the end of July. Site A has a design
capacity of 96,100 kg.
Licensing Update
Zenabis is currently in the process of various licensing
submissions for Zenabis Langley, Zenabis Atholville, Zenabis Pitt
Meadows and Zenabis Aldergrove as outlined in the table below:
License
Submission
|
Submission
Date
|
Design
Capacity
|
Zenabis Langley Site
A – Cultivation License
|
September 4, 2018
(Initial Submission Date)
January 25, 2019
(Amendment Submission
Date)
|
96,100kg
|
Zenabis Langley Site
A – Industrial Hemp
|
February 9,
2019
|
N/A
|
Zenabis Atholville
Phase 2A – Cultivation Amendment
|
March 18,
2019
|
3,200kg
|
Zenabis Pitt Meadows
– Industrial Hemp
|
April 4,
2019
|
N/A
|
Zenabis Aldergrove –
Industrial Hemp
|
April 4,
2019
|
N/A
|
Zenabis Atholville
Phase 2B – Part 1
|
April 9,
2019
|
9,800kg
|
Zenabis Langley Site
B – Industrial Hemp
|
April 10,
2019
|
N/A
|
Zenabis Atholville
Phase 2B – Part 2
|
May,
20191
|
N/A
|
Zenabis Atholville
Phase 2C
|
June-July
20191
|
12,000kg
|
1Expected submission
timeline
|
Zenabis is currently using Zenabis Pitt Meadows, Zenabis
Aldergrove, and Zenabis Langley for the propagation and floral
business. Zenabis intends to grow hemp on available land at the
Zenabis Pitt Meadows and Zenabis Aldergrove facilities upon receipt
of industrial hemp licenses from Health Canada. Zenabis intends to
grow hemp on available land and in available greenhouse space at
the Zenabis Langley facility upon receipt of an industrial hemp
license from Health Canada.
Corporate Update
Mike Smyth has begun his tenure
as Chief Financial Officer of Zenabis, earlier than the originally
announced start date of May 14.
Mr. Grieve remarked, "Bringing a wealth of experience in the
capital markets and connections within the cannabis industry, Mr.
Smyth will be taking the lead on exploring numerous financial
options available to the Company to ensure that it moves forward in
a position of financial strength to grow its business."
In addition, John Kondrosky,
Zenabis' Chief Operating Officer, is leaving the Company to take on
a leadership position with another cannabis company. Following Mr.
Kondrosky's departure, the Company intends to operate with its
indoor facilities (Zenabis Atholville, Zenabis Stellarton, and
Zenabis Delta) being led by a division manager, as Zenabis no
longer requires a pan-enterprise Chief Operating Officer.
Zenabis is grateful to Mr. Kondrosky for his contributions to the
company and wishes him the best in his future endeavours.
Monty Sikka, Chair of the Board,
stated, "We are incredibly grateful for the leadership John
provided as we built Sun Pharm, and
then subsequently as John managed the rapid scale up and ongoing
operational readiness at our indoor facilities to support our
successful launch into the legal adult recreational market in
Canada."
Filing of Financial Statements
Zenabis has filed on SEDAR the financial statements and
associated MD&A for Sun Pharm
for the year ended December 31,
2018.
"These financial statements reflect only the initial period of
Zenabis' rapidly expanding business in the last quarter of 2018,
during which sales of cannabis for the adult-use market were first
legalized in Canada," stated Mr.
Grieve. "We anticipate releasing Zenabis' financial statements and
MD&A for the first quarter of 2019 by the end of May, which
will reflect our stronger harvests and the financing activities
that have occurred during the quarter that will enable us to
achieve our expansion objectives."
Key Highlights:
- Gross revenues for the year of $7.5
million, of which $3.7 million
was earned in the third quarter ended September 30, 2018 (consisting of sales of
$3.1 million in business-to-business
transactions and the remaining sales of $0.6
million to the medical and adult-use recreational markets)
and $3.8 million in the fourth
quarter ended December 31, 2018 of
$3.8 million (consisting of sales of
$0.8 million in business-to-business
transactions and the remaining sales of $3.0
million to the medical and adult-use recreational
markets). This dramatic change in markets between the third
and fourth quarters reflects the legalization of the adult-use
recreational market on October
17.
- Operating loss for the year increased from $5.1 million in 2017 to $16.1 million in 2018, with 2018 operating
expenses of $23.4 million being
partially offset by the gross margin on revenues of $7.3 million after fair value adjustments on
biological assets. Included in operating expenses were
significant non-cash items such as a $4.1
million increase in share-based compensation expense due to
the accelerated vesting of options due to the Reverse Take-Over and
the grant of options to Zenabis' rapidly expanding pool of
employees and consultants due to the expansion of the Company's
operations.
Secured Convertible Notes
On April 24, 2019, Zenabis gave
notice to the principal holders of its Secured Convertible Notes
issued in October 2018 that the
recently completed equity offering of units for gross proceeds of
$28.7 million would be deemed to
constitute a "Liquidity Event" (see definition reproduced in Note
9(c)(i) to Sun Pharm's financial statements for the year ended
December 31, 2018) for the purposes of determining the conversion
price of their Secured Convertible Notes. There is no contemplation
of any subsequent "Liquidity Event" or further repricing in the
documentation of the Secured Convertible Notes.
Based on a 25% discount to the offering price of $2.25 in accordance with the definition provided,
the conversion price on the Secured Convertible Notes is now
$1.69. This will result in the
aggregate principal amount outstanding under the Secured
Convertible Notes of $24,864,204, if
fully converted, being convertible into a maximum of 14,734,339
common shares (the change in conversion price resulted in an
increase in the maximum number of shares issuable upon conversion
of the Secured Convertible Notes by 4,849,089 common shares
representing 2.4% of Zenabis' common shares outstanding or 1.8% of
Zenabis' fully-diluted common shares outstanding). Under
their terms, Zenabis has the right to force conversion of all
outstanding Secured Convertible Notes if the 20-day VWAP of the
common shares is equal to or exceeds a 50% premium to the
conversion price (being $2.53) and
the average daily trading volume in the common shares during such
20-day period exceeds $5 million.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in policies
of the TSX Venture Exchange) accepts responsibility for the
adequacy or accuracy of this release.
About Zenabis
Zenabis is a significant licensed cannabis cultivator of medical
and recreational cannabis, and employs staff coast-to-coast, across
facilities in Atholville, New
Brunswick; Delta and
Langley, B.C.; and Stellarton, Nova Scotia. In addition to
gaining technologically advanced knowledge of plant propagation,
the recent addition of state-of-the-art greenhouses in Langley provides Zenabis with 3.5 million
square feet of facility space that can, upon full conversion, be
dedicated to cannabis production.
If all facility space is fully built out and dedicated to
production, Zenabis will own, and have access to, 660,000 square
feet of high quality indoor cannabis production space, as well as
2.1 million square feet of greenhouse space at its Langley facility (an additional 700,000 square
feet of greenhouse space will be used to continue the existing
propagation business, to be converted at such a time that is
beneficial to the strategic position of the company), strategically
positioned on Canada's coasts.
These facilities, if fully built out and converted for cannabis
production, would have the design capacity to yield approximately
479,300 kg of dried cannabis annually, for both national and
international market distribution. The Zenabis brand name is used
in the medical market, while Namaste is used in the adult-use
recreational market.
Forward Looking Information
This news release contains statements that may
constitute "forward-looking information" within the meaning of
applicable Canadian securities legislation. Forward-looking
information may include, among others, statements regarding the
future plans, costs, objectives or performance of Zenabis, or the
assumptions underlying any of the foregoing. In this news release,
words such as "may", "would", "could", "will", "likely", "believe",
"expect", "anticipate", "intend", "plan", "estimate" and similar
words and the negative form thereof are used to identify
forward-looking statements. In this news release, forward-looking
statements relate, among other things, to: our harvest forecast for
the remainder of 2019, the design capacity, conversion, expansion
and optimization of our facilities, the licensing of our facilities
and the adequacy of our financial resources to achieve the
conversion and expansion of our facilities. Forward-looking
statements should not be read as guarantees of future performance
or results, and will not necessarily be accurate indications of
whether, or the times at or by which, such future performance will
be achieved. No assurance can be given that any events anticipated
by the forward-looking information will transpire or occur.
Forward-looking information is based on information available at
the time and/or management's good-faith belief with respect to
future events and are subject to known or unknown risks,
uncertainties, assumptions and other unpredictable factors, many of
which are beyond Zenabis' control. These risks, uncertainties and
assumptions include, but are not limited to, those described in the
Shelf Prospectus, a copy of which is available on SEDAR at
www.sedar.com and could cause actual events or results to differ
materially from those projected in any forward-looking statements.
Furthermore, any forward-looking information with respect to
available space for cannabis production is subject to the
qualification that management of Zenabis may decide not to use all
available space for cannabis production, and the assumptions that
any construction or conversion would not be cost prohibitive,
required permits will be obtained and the labour, materials and
equipment necessary to complete such construction or conversion
will be available. Accordingly, readers should not place undue
reliance on the forward-looking statements and information
contained in this news release. Zenabis does not intend, nor
undertake any obligation, to update or revise any forward-looking
information contained in this news release to reflect subsequent
information, events or circumstances or otherwise, except if
required by applicable laws.
For more information, visit: https://www.zenabis.com.
SOURCE Zenabis Global Inc.