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Zenabis Provides Operational and Corporate Updates and Files Sun Pharm Investments Ltd. Year End Financial Statements on SEDAR

VANCOUVER, April 29, 2019 /CNW/ - Zenabis Global Inc. (TSXV:ZENA.V - News) ("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.


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