Zenabis Global Announces Second Quarter 2019 Financial Results VANCOUVER, Aug. 14, 2019 /CNW/ – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) today announced its financial results for the...

Zenabis Global Announces Second Quarter 2019 Financial Results

VANCOUVER, Aug. 14, 2019 /CNW/ – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) today announced its financial results for the second quarter ended June 30, 2019. All amounts, unless specified otherwise, are expressed in Canadian dollars.

Key Production Metrics

  • During the three months ended June 30, 2019, Zenabis cultivated 2,473 kg of dried cannabis, outperforming original design capacity by 35% and exceeding the Company’s 1,770 kg forecast by 40%;
  • As a result of the consistent cultivation outperformance at Zenabis Altholville, Zenabis has revised its annual production capacity estimate for Zenabis Atholville to 46,300 kg from 34,300 kg of dried cannabis, increasing Zenabis’ total licensed cultivation capacity to 54,000 kg of dried cannabis from 42,800 kg;
  • During the three months ended June 30, 2019, Zenabis’ indoor cost of cultivation was $0.78 per gram at Zenabis Atholville; as a result, Zenabis has revised its cultivation cost estimate for Zenabis Langley from $0.75 per gram to $0.50 per gram.
  • Zenabis remains on track to achieve an annual cannabis cultivation capacity of 143,200 kgunder its current capital program.

We executed at or above plan in the second quarter and, in so doing, continued to make significant progress towards our goal of becoming one of the largest licensed producers of medical and adult-use recreational cannabis in Canada. Notably, the buildout and completion of our growing facilities has progressed generally on time and on budget.

Andrew Grieve, Chief Executive Officer of Zenabis

The completion of Zenabis Atholville and Zenabis Langley Site A – Part 1 helped us increase our licensed annual production capacity from 10,200 kg of dried cannabis as at March 31, 2019 to 54,000 kg of dried cannabis today. We are on track to achieve our new target of 143,200 kg of annual cannabis cultivation capacity under our existing capital program.

“We achieved meaningful growing process efficiencies during the quarter, such that our dried cannabis output outperformed original design capacity by 35%,” continued Mr. Grieve. “Our strength on the cultivation front has given us the confidence to raise our cultivation capacity estimate for Zenabis Atholville by 12,000 kg per annum, from 34,300 kg to 46,300 kg of dried cannabis. We expect our performance ratio in July to exceed 10% of our amended Zenabis Atholville design capacity (more than 40% over original design capacity) based on preliminary results.”

Commenting on Zenabis’ revenue growth expectations for the remainder of 2019, Mr. Grieve said, “In the second half of 2019, we expect to cultivate approximately 16,100 kg and 1,650 kg of dried cannabis from Zenabis Atholville and Zenabis Langley (Site A – Part 1), respectively. Given our increasing cultivation forecast profile, we expect to achieve meaningful quarter-over-quarter revenue growth through the remainder of the year.”

Capacity and Cultivation Cost Estimate Revisions

Based on the 35% outperformance achieved in the second quarter of 2019, actual production capacity at Zenabis Atholville is expected to be higher than the originally announced design capacity estimate. As a result, Zenabis is increasing its annual production capacity estimate for Zenabis Atholville (the “Zenabis Atholville Capacity Amendment”), upon full licensing, to 46,300 kg (being the total design capacity of the facility) from 34,300 kg of dried cannabis. As a result of the Zenabis Atholville Capacity Amendment, Zenabis’ target production capacity by the end of the third quarter of 2019 is now 143,200 kg of dried cannabis, a 12,000 kg increase from 131,200 kg previously estimated.

Based on the production cost of dried cannabis achieved at Zenabis Atholville in the second quarter of 2019 ($0.78 per gram, which is $0.32 per gram lower than Zenabis’ previously announced estimated cultivation cost per gram of $1.10), the Company now expects its cost of cultivation at Zenabis Langley to be approximately $0.50 per gram. This is $0.25per gram, or 33%, lower than the $0.75 per gram estimate previously provided by the Company. This cost of cultivation estimate is based on the Company’s estimates for facility staffing costs (inclusive of facility overhead), utility costs and material costs based on Zenabis’ experience at Zenabis Atholville. Zenabis believes this figure indicates the expected cost competitiveness of Zenabis Langley.

The Company believes that increased competition in the global cannabis industry is likely to result in further declines in the wholesale price of cannabis in 2020 and beyond. Zenabis believes it is well-positioned to remain competitive, producing high-quality products at a relatively low cost, based on the results has achieved to date.

(1) A 12,000 kg increase from the previously disclosed 131,100 kg figure as a result of the upward revision of the capacity of Zenabis Atholville from 34,300 kg to 46,300 kg.

Second Quarter 2019 Highlights and Recent Developments

Production and Sales Metrics

  • Key production and sales metrics are summarized in the table below:
  • Due to sustained outperformance relative to design capacity and forecast from Zenabis Atholville, Zenabis revised the cultivation forecast for the third and fourth quarters of 2019 from 11,560 kg to 17,679 kg (inclusive of 1,650 kg due to the expedited receipt of the cultivation license for Zenabis Langley Site A – Part 1), a 53% increase (a 39% increase excluding Zenabis Langley Site A – Part 1)
  • Zenabis outperformed its original design capacity by 41% in June 2019

Facilities and Construction

  • Completed Phase 2A, 2B and a significant portion of Phase 2C at Zenabis Atholville
  • Achieved substantial completion at Zenabis Langley Site A – Part 1
  • Continued the buildout of Zenabis Langley Site A – Part 2, which is on track for completion in September or October 2019


  • Reached licensed annual production capacity of 23,100 kg as at June 30, 2019, a more than two-fold increase from 10,200 kg as at March 31, 2019; the Company’s licensed annual production capacity is now 54,000 kg
  • Received license amendments for Phase 2A, 2B and 2C – Part 1 at Zenabis Atholville
  • Received a cultivation license from Health Canada for Zenabis Langley
  • Received an industrial hemp production license from Health Canada, enabling Zenabis to commence hemp cultivation and hemp-derived CBD production using greenhouses and the remaining land, off-cycle from other crops, at its Zenabis Langley, Zenabis Pitt Meadows and Zenabis Aldergrove facilities
  • A summary of the changes in Zenabis’ licensed annual production capacity between March 31, 2019 and August 13, 2019 is provided below

(4) (22,300 kg + 9,800kg) x 35% = an approximately 11,200 kg increase in licensed production capacity as a result of the Zenabis Atholville Capacity Amendment


In the three-month period ended June 30, 2019 Zenabis achieved the following:

  • Expanded recreational cannabis product offerings to include pre-roll products under a new ultra-premium brand, Blazery, as well as pre-roll and oil products under its existing recreational brand, Namaste
  • Entered into a binding term sheet for a three-year supply arrangement with leading German pharmaceutical research company Farmako GmbH (“Farmako”) for the supply of biosynthetically produced pure CBD isolate oil (99.9%) from Farmako to Zenabis for sale in Canada; and the supply of European Union Good Manufacturing Practices certified cannabis cultivated in Zenabis’ indoor facilities in Canada for sale by Farmako to the German medical market
  • Graduated to the Toronto Stock Exchange, increasing the Company’s exposure to a broader range of investors

Subsequent to June 30, 2019 Zenabis:

  • Closed a $30 million non-dilutive financing via a pre-paid supply agreement with High Park Holdings Ltd.
  • Secured an incremental $10 million in non-dilutive financing via a pre-paid supply agreement with Starseed Medicinal Inc. (“Starseed”), pursuant to which Starseed will advance $10 million to Zenabis in September 2019
  • Amended the $25 million senior secured credit facility, extending the facility’s maturity date from October 17, 2019to July 5, 2020, and significantly reduced the prepayment penalty

Summary Second Quarter 2019 Financial Results

(5) Refer to the “Non-GAAP Financial Measures” section of the MD&A.

(6) Net revenue represents our total gross revenue exclusive of excise taxes levied by the Canada Revenue Agency (“CRA”) on the sale of medical and adult-use recreational cannabis products effective October 17, 2018.

(7) Due to the accounting presentation resulting from the RTO, no comparable information is presented for the Propagation and Other segments. For prior period information please refer to the financial statements previously filed by Bevo Agro Inc. on SEDAR.

(8) No meaningful comparison can be drawn between 2019 periods and corresponding periods in 2018 due to the fundamental change in the nature of the Cannabis operations (moving from limited medical production to large scale commercial production for adult use recreational and medical markets).

The Company’s financial results for the second quarter ended June 30, 2019 are presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting.

For the three months ended June 30, 2019, Zenabis recorded net revenue of $25.0 million, comprised primarily of $7.3 million and $18.1 million in Cannabis and Propagation segments, respectively. Comparatively, in the three months ended March 31, 2019, the Company recorded net revenue of $4.1 million and $7.5 million in the Cannabis and Propagation segments, respectively. The 78% sequential quarter-over-quarter growth in Cannabis segment net revenue was achieved despite being negatively impacted by temporary price reductions on inventory sold to provincial counterparties designed to help Zenabis to capture a larger share of the recreational cannabis market.

As previously disclosed in the May 30, 2019 press release, the Company published expected net cannabis revenue of $10,000,000 to $12,000,000 whereas actual net cannabis revenue for the period was $7,251,860. The shortfall from the expected net revenue is primarily due to the following factors:

  • In order to increase recreational cannabis market share, the Company reduced prices on sales to provincial counterparties in July 2019. This resulted in an approximate retroactive reduction of $790,000 in net revenue for the quarter;
  • Due to logistical issues, certain shipments totaling approximately $310,000 were delayed into the month of July; and
  • Certain third-party producers failed to supply saleable cannabis in line with contractual obligations. Due to quality issues, Zenabis had to return or reject a total of 554 kg of cannabis from a third-party. To ensure there was sufficient inventory on-hand in order to provide consistent supply to provincial counterparties beyond June of 2019, Zenabis held back certain products it had produced in May and June. Subsequent to the quarter end, Zenabis provided notice to terminate its agreement to purchase cannabis from the third-party who shipped the cannabis that was not saleable.

Gross margin before fair value adjustment totaled $8.4 million during the three months ended June 30, 2019, and included $3.6 million and $4.5 million in Cannabis and Propagation gross margin before fair value adjustments, respectively (50% and 25% of net revenue by segment, respectively). Comparatively, in the three months ended March 31, 2019, the Company recorded Cannabis and Propagation gross margin before fair value adjustments of $2.1 millionand $1.6 million, respectively (51% and 21% of net revenue by segment, respectively).

Total operating expenses for the three months ended June 30, 2019 were $18.9 million, compared to $18.8 million in the three months ended March 31, 2019. Loss on the revaluation of derivative liability was $4.6 million in the 2019 second quarter compared to a gain of $7.9 million for Q1 2019, which was the result of fluctuations in the Company’s share price. Share-based compensation in each of Q2 2019 and Q1 2019 was $2.1 million. Finance and investment expense was $98,602 in Q2 2019 compared to income of $1.1 million in Q1 2019, which is due to the decrease in market value of investments held.

Adjusted EBITDA has continued to show a loss due primarily to the operational costs incurred by the Company to build out its operational capacity to achieve the planned design capacity of its various facilities. Adjusted EBITDA has remained consistent in comparison to the three months ended March 31, 2019 as it continues to have a loss due to the additional expenses which are offset by the increase in sales realized through the Company’s Cannabis and Propagation segments. Q2 2019 Adjusted EBITDA was ($6.3 million), compared to ($6.4 million) in Q1 2019.

The Company recorded a net loss for the three months ended June 30, 2019 of $18.5 million, or $0.09 loss per common share, compared to a net loss of $4.0 million, or $0.02 loss per common share, for the three months ended March 31, 2019.

Cash on hand decreased from $17.0 million as at December 31, 2018 to $8.7 million at June 30, 2019. The decrease in cash was mainly attributable to cash used in operating activities of $34.6 million and investing activities of $61.2 million, offset by cash received from financing of $87.6 million. After June 30, 2019, Zenabis secured $40.0 million in financing via pre-paid supply agreements with High Park and Starseed ($30.0 million of which was received in July 2019; Zenabis expects to receive the remaining $10.0 million in September 2019).

Cautionary Note Regarding Non-GAAP Measures

This news release refers to certain financial performance measures that are not defined by and do not have a standardized meaning under IFRS (termed “Non-GAAP measures”). These Non-GAAP measures are defined in the MD&A. Non-GAAP measures are used by management to assess the financial and operational performance of the Company. The Company believes that these Non-GAAP measures, in addition to conventional measures prepared in accordance with IFRS, enable investors to evaluate the Company’s operating results, underlying performance and prospects in a similar manner to the Company’s management. As there are no standardized methods of calculating these Non-GAAP measures, the Company’s approaches may differ from those used by others, and accordingly, the use of these measures may not be directly comparable. Accordingly, these Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Consolidated Financial Statements and MD&A

The Company’s unaudited interim condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2019 and 2018 and related MD&A of financial condition and results of operations are available under the Company’s profile on SEDAR at www.sedar.com and on the Investor Relations section of the Company’s website at https://www.zenabis.com.

About Zenabis

Zenabis is a significant Canadian licensed cannabis 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 Brunswick; Delta, Aldergrove, Pitt Meadows and Langley, British Columbia; 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, Pitt Meadows and Aldergrove provides Zenabis with 3.5 million square feet of facility space that can, if fully converted, be dedicated to cannabis production.

If all facility space at Zenabis Atholville, Zenabis Stellarton and Zenabis Langley is fully converted and dedicated to production, Zenabis will own, and have access to 635,000 square feet of high quality indoor cannabis production space, as well as 2.1 million square feet of greenhouse cannabis production space at its Langley facility, with this production strategically positioned on Canada’s coasts. Zenabis expects these facilities to have an annual design capacity of 143,200 kg of dried cannabis by the third quarter of 2019. These facilities, if fully built out and converted for cannabis production, would have an annual design capacity to yield approximately 490,800 kg of dried cannabis annually, for both national and international market distribution. An additional 700,000 square feet of greenhouse space will be used to continue the existing propagation business and produce industrial hemp, and can be converted to cannabis production at such a time that is beneficial to the strategic position of the Company. The Zenabis brand name is used in the cannabis medical market, while the Namaste by Zenabis and Blazery brand names are used in the cannabis adult-use recreational market, and the True Büch brand name is used for Zenabis’ kombucha products.

Original Press Release

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