Zenabis Provides Corporate Update

Published: December 22, 2020

Zenabis Provides Corporate Update

Zenabis Global Inc. provided a corporate update.

Highlights

  • Zenabis Atholville has been granted Good Agricultural and Collecting Practices (GACP) Certification by the Control Union Medical Cannabis Standard (“CUMCS”). Obtaining this certification provides documented evidence that Zenabis has met CUMCS’ strict standards for quality and consistency in the cultivation and harvest of medical cannabis. Zenabis is the first Canadian company to be CUMCS certified, which is a requirement for some export jurisdictions
  • ZenPharm, the Company’s European Union-based joint venture in Malta, has successfully completed its EU GMP audit and is expecting formal EU GMP certification in early 2021
  • In anticipation of formal EU GMP certification, Zenabis has shipped this week approximately 50 kg of EU GMP approved dried cannabis to ZenPharm
  • The Re-Up 510-threaded vapourizer line will be launched in the province of Alberta in December and has already been launched in OntarioBritish Columbia and New Brunswick
  • In December, Zenabis completed an additional export shipment of packaged medicinal cannabis to Australia
  • The conditions included in the agreement to sell our Delta facility have been met and the sales is scheduled to be completed on December 30, 2020 as previously announced
  • Zenabis has appointed Echelon Capital Markets (“Echelon”) as financial advisors with the goal of obtaining new financing, on commercially reasonable terms, to repay its existing Senior Secured Debentures of $58.9 million.

Shai Altman, Chief Executive Officer of Zenabis, stated, “Zenabis’ continues to increase sales in all categories and across all channels and this is a great testament to the quality, value proposition, and uniqueness of our product lines and Brands.  It is this foundation on which we will continue to build and expand the Company.  We continue to drive our strategic efforts behind focus, prioritization, and efficiencies in all aspects of our operations.  Additionally, by entering into this agreement with Echelon we are confident that together we will be successful in obtaining new debt financing with which to repay our Senior Debentures.  If successful, this project will enable the Company to significantly reduce its cost of capital and thus improve its cash flows.”

Facilities Update

Zenabis Atholville

Cultivation

Zenabis Atholville remains in steady-state production from a cultivation standpoint, with harvest volumes for 2020 expected to achieve design capacity. Zenabis’ is in the midst of launching three additional cultivars grown at the Zenabis Atholville and Langley facilities into the Canadian recreational market.

Extraction

Zenabis Atholville’s extraction operations continue to run at capacity as a result of increasing demand for the Company’s Cannabis 2.0 products, including its Namaste PAX Era and Re-Up 510 threaded vaporizer cartridges. The Company continues to source additional distillate from third parties in order to meet this demand.

Zenabis Langley

Zenabis Langley cultivation remains in steady state and in conjunction with production from Zenabis Atholville, cultivation output remains sufficient to meet current market demand without further expansion of Zenabis Langley.

Zenabis Stellarton

Zenabis Stellarton is currently operating as the Company’s centre of excellence for pre-roll packaging and distribution and will be the nexus of the Company’s Cannabis 2.0 products. With the large increase in demand for the Namaste and Re-Up pre-rolls, the company recently hired additional staff at the site to support the operations and meet demand.

Business Development Update

Recreational Cannabis

Recreational cannabis sales continue to grow as a result of the quality and price-competitiveness of Zenabis’ portfolio of products as well as the introduction of new products such as three new strains which will ship to key provincial markets commencing in December and January, in both flower and pre-roll formats.  The Company is expecting record monthly sales into Alberta in the month of December and sales continue to trend upwards in all of the nine provinces and three territories where our products are listed. The implementation of COVID-19-related lock-downs and other restrictions in the Company’s key markets during the fourth quarter of 2020; however, may temporarily interrupt this upwards sales trend and the Company is accordingly revising its consolidated net revenue guidance for Q4 2020 to $22 million to $27 million comprised of $16 million to $19 million for the Cannabis segment and $6 million to $8 million for the Propagation segment.  Consolidated adjusted EBITDA for the quarter is now expected to be $3 million to $5 million.

Sales of pre-rolls continue to grow with month-over-month sales increasing 9% on average for this category, for the eleven completed months of 2020, and 13% month-over-month growth over the last three months.

The company’s refocusing efforts behind the key categories of flower, pre-rolls, and vapes is showing significant improvements in the availability of the company’s products across all provincial customers

Cannabis 2.0 Update

The Company is working to rapidly increase distillate production in order to meet the current level of consumer demand. Re-Up 510 Vapes have now been launched in B.C., Ontario and New Brunswick, and shipments to Alberta starting in December.  Listings are already in place in ManitobaSaskatchewan and the Yukon and are expected to launch in these provinces and territories in the first quarter of 2021.

Oil sprays will be relaunched in the province of Quebec in late December or early January.

Commercial roll-out of edibles, commencing with gummies, have been delayed to the first or second quarter of 2021 as a result of quality concerns with the products produced by the Company’s co-manufacturing partner. These concerns resulted in further re-evaluation of that partnership for the future.

The agreement with HYTN Beverages Inc. (“HYTN”) has been terminated as a result of continuing delays on the part of HYTN in the commissioning of their production line.  Zenabis is re-revaluating its beverages strategy and will engage with other potential co-manufacturing partners in the event that it considers the economic potential of this product category to be attractive.

Commercial production of trichrome concentrate products (such as hash) has been postponed until mid-2021 due to re-prioritization of the Company’s product strategy to the most profitable growth categories.

Supply Agreements, Contract Cultivation Agreements, International Agreements, and Bulk Market Cannabis Sales

The following is a summary of the status of the various relations by contract or relationship type:

Contract or Arrangement Type

Number of contracts or counterparties, status and current or expected volume

Bulk – Canada

Three ongoing arrangements, are currently shipping; with aggregate volume of up to 250 kg per month.

Bulk – International

Two ongoing arrangements with counterparties in Israel, with anticipated combined volume of up to 1,000 kg per month. Shipments have paused temporarily due to new import regulations; however, the Company has recently, successfully  completed most of these requirements and shipments are expected to resume in Q1, 2021.  All export shipments are subject to regulatory and import permits in the destination county as well as receipt of Health Canada export permits.

Packaged – International

The Company continues shipments to Australia with 60 kg shipped in the month of December. 

Bulk – EU GMP

One executed contract for a minimum volume of 500 kg per year with commercial shipments awaiting receipt of ZenPharm’s cannabis license from the Malta Medicines Authority.  This is expected to occur in early 2021.  ZenPharm successfully completed its EU GMP audit and expects to receive formal EU GMP certification, as well as its Cannabis license from the Malta Medicines Authority, in early 2021.  A shipment of 50 kg of dried flower to ZenPharm has been completed this month.

Contract Cultivation – Canada

Two executed contracts for a potential volume of 200 kg per month.  One agreement is on hold and one is being converted into a supply agreement.

Prepaid Supply – Canada

Two executed contracts with potential volume of more than 2,000 kg per month, with one operating in accordance with the contract, and one subject to dispute.

Zenabis is currently in various stages of discussions with potential counterparties for additional agreements for bulk, contract cultivation, white label production, and other commercial agreements.

Zenabis is a significant Canadian licensed cultivator of medical and recreational cannabis, and a propagator and cultivator of floral and vegetable products. Zenabis employs staff coast-to-coast, across facilities in Atholville, New BrunswickAldergrovePitt Meadows and Langley, British Columbia; and Stellarton, Nova Scotia. Zenabis currently has 111,200 kg of licensed cannabis cultivation space across four licensed facilities. Zenabis has 3.5 million square feet of total facility space dedicated to a mix of cannabis production and cultivation and its propagation and floral business.

The Zenabis brand name is used in the cannabis medical market, the NamasteBlazery, and Re-Up brand names are used in the cannabis adult-use recreational market.

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