Zenabis Seeks to Raise $20.8 Million at Massive Discount Through Rights Offering

Zenabis Announces Rights Offering to Raise Up To $20.8 Million

Founding Shareholders and Insiders Commit to Strong Participation

VANCOUVER, Oct. 24, 2019 /CNW/ – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) announces that it will be offering rights (the “Rights Offering”) to holders of its common shares (“Common Shares”) of record at the close of business on October 31, 2019 (the “Record Date”). The Rights Offering is intended to raise up to $20.8 million, assuming full uptake.

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.

Full details of the Rights Offering are included in a Rights Offering circular, which will be filed today under Zenabis’ profile on SEDAR at www.sedar.com. The circular and related materials will also be mailed to registered holders of Common Shares as of the Record Date.

Rights Offering Details

Pursuant to the Rights Offering, each holder of Common Shares will receive one transferable right (a “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 (the “Subscription Price”) per Common Share. The Subscription Price is equal to approximately an 73% discount to the volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (the “TSX”) for the 5-day period ending on October 23, 2019.

A maximum of 139,086,624 Common Shares will be issued pursuant to the Rights Offering, representing 66.6% of the currently issued and outstanding Common Shares. The Rights Offering will be open to holders of Common Shares who are residents in Canada. No fractional Common Shares will be issued.

Each common shareholder resident in Canada may either:

• Exercise their Rights and subscribe for additional common shares;
• Sell their Rights (the Rights will be traded on the TSX under the ticker ZENA.RT as outlined below); or
• Do nothing and let their Rights expire

Rights Offering Benefits for Existing Shareholders

Zenabis believes the Rights Offering is in the best interest of existing shareholders for the following reasons:

• Liquidity is an important resource given the current state of the Canadian cannabis market;
• Although Zenabis does not currently need the proceeds from the Rights Offering to deliver on its revised business plan as released on October 21, 2019, the Company believes having excess cash on hand is in the best interest of shareholders;
• Founding shareholders and insiders expressed strong interest in contributing over $6 million in incremental equity capital to the business, rather than being diluted by third-party capital;
• A Rights Offering allows the participation of existing shareholders alongside insiders (reducing dilution when compared to an alternative form of capital raise which would prevent the participation of the full shareholder base); and
• Zenabis believes this is the least dilutive manner to raise incremental capital given current market conditions (incremental equity is also preferable as a capital source compared to a debt alternative given the quantum of Zenabis’ existing debt outstanding).

Rights Offering Description

A Rights Offering notice (the “Notice”), together with a Rights certificate, will be mailed to registered holders of Common Shares as of the Record Date. Full details of the Rights Offering, including information regarding the distributions of the Rights and the procedures to be followed, are included in the Rights Offering circular.

To subscribe for Common Shares, a completed Rights certificate, together with payment in full of the Subscription Price for each Common Share subscribed for, must be received by the subscription agent for the Rights Offering, Computershare Investor Services Inc., prior to the expiry of the Rights at 5:00 p.m. (Toronto time) on November 27, 2019. Shareholders who own their Common Shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary.’

The Rights and the Common Shares issuable upon exercise of the Rights will be listed on the TSX. The Rights will be listed for trading on the TSX beginning on October 30, 2019 under the symbol “ZENA.RT”. Trading in the Rights on the TSX will cease at 12:00 p.m. (Toronto time) on November 27, 2019.

The Rights Offering will be conducted in all provinces and territories of Canada. However, certain holders of Common Shares in jurisdictions outside of Canada may be able to participate in the Rights Offering where they can establish that the transaction is exempt under applicable legislation. If you are a holder of Common Shares and reside outside of Canada please review the Notice of Rights Offering, Rights Offering Circular and Notice to Ineligible Shareholders to determine your eligibility and the process and timing requirements to receive and, or, exercise your Rights. A copy of the Notice of Rights Offering, the Rights Offering Circular and the Notice to Ineligible Shareholders are available under the Company’s profile on SEDAR at www.sedar.com.

The Rights Offering will include an additional subscription privilege under which holders of Rights who fully exercise their Rights will be entitled to subscribe pro rata for additional Common Shares, if available, that were not otherwise subscribed for in the Rights Offering.

The estimated net proceeds of the Rights Offering, assuming full exercise of the Rights and after deducting expenses, will be approximately $20.6 million. The net proceeds of the Rights Offering will be utilized for general corporate working capital.

Details of Insider Participation

Pursuant to the terms of the standby commitment agreements (the “Standby Commitment Agreements”) dated the date hereof, each of the insiders of the Company identified in the table below (each, a “Standby Guarantor” and collectively, the “Standby Guarantors”) have agreed to purchase from the Company, if less than 139,086,624 Common Shares are subscribed for under the Rights Offering (being 100% of the Common Shares that may be issued pursuant to the Rights Offering) the lesser of (i) such Standby Guarantor’s pro rata portion of the number of Common Shares available to be purchased but not otherwise subscribed for under the Rights Offering, and (ii) the maximum number of Common shares set forth opposite the name of such Standby Guarantor below (each, a “Standby Commitment” and collectively, the “Standby Commitments”). No Standby Guarantor will be paid a fee in connection with their provision of the Standby Commitment. A copy of each Standby Commitment Agreement has been filed under the Company’s profile on SEDAR at www.sedar.com.

To the knowledge of the Company, after reasonable inquiry, the following directors, senior officers and persons controlling over 10% of the Common Shares of the Company (collectively, the “Insider Group”), as the date hereof, have committed or expressed their intention to participate in the Rights Offering as set out in the following table, subscribing in the aggregate for approximately 29.52% of the Common Shares available under the Rights Offering, being 41,059,486 Common Shares.

_Note:

1. _{Of the 7,698,732 Rights not being exercised by Manoj (Monty) Sikka in his own capacity, he intends to transfer 375,000 Rights to Adam Spears, 500,000 Rights to Daniel Burns and 1,000,000 Rights to Larry Van Wieren, who have each confirmed they will exercise such Rights.}
2. _{In addition to fully exercising his Basic Subscription Privilege, Adam Spears intends on exercising 375,000 Rights transferred to him by Manoj (Monty) Sikka (who will not exercise such rights himself) and 375,000 Rights transferred to him by Mark Catroppa (who will not exercise such rights himself).}
3. _{Daniel Burns will not have a Basic Subscription Privilege, but intends on exercising 500,000 Rights transferred to him by Manoj (Monty) Sikka (who will not exercise such rights himself) and 500,000 Rights transferred to him by Mark Catroppa (who will not exercise such rights himself).}
4. _{Larry Van Wieren will not have a Basic Subscription Privilege, but intends on exercising 1,000,000 Rights transferred to him by Manoj (Monty) Sikka (who will not exercise such rights himself) and 1,000,000 Rights transferred to him by Mark Catroppa (who will not exercise such rights himself).}
5. _{Of the 7,870,132 Rights not being exercised by Mark Catroppa in his own capacity, he intends to transfer 375,000 Rights to Adam Spears, 500,000 Rights to Daniel Burns and 1,000,000 Rights to Larry Van Wieren, who have each confirmed they will exercise such Rights.}

As at the date hereof, the Insider Group owns or exercises control or direction over, directly or indirectly, 73,408,092 Common Shares, representing approximately 35.2% of the issued and outstanding Common Shares. Based on the take-up of the Basic Subscription Privileges of the Insider Group indicated in the above table, the Insider Group of the Company would own an aggregate of 114,467,578 Common Shares following the Rights Offering, representing 32.9% of the issued and outstanding Common Shares if the maximum number of Common Shares issuable pursuant to the Rights Offering is issued.

AltaCorp Capital Inc. is acting as financial advisor to the Company for the Rights Offering.

Rationale

On August 21, 2019, concurrent 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.

As previously announced, Zenabis recently encountered two issues that have decreased or are expected to decrease Zenabis’ surplus liquidity:

• 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
• Identification 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).

The packaging ramp-up issues at Zenabis Atholville and Zenabis Stellarton have been largely resolved (Zenabis packaged over 23,000 units or 53 kg on October 22, 2019 at Zenabis Atholville). Given the above developments, Zenabis determined it was in the best interest to secure additional liquidity.

The above use of net proceeds reflects the current intention of the Company based on information currently available to it and on current circumstances, economic and otherwise. The actual use of the net proceeds of the Rights Offering may vary depending on operational and capital needs and the progress of the research and development programs from time to time. Accordingly, management of the Company will have the discretion in the application of the proceeds of the Rights Offering.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any of the securities described herein. There shall be no offer or sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification of such securities under the laws of any such jurisdiction.

About

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 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. 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.

The TSX has not reviewed and does not accept responsibility for the adequacy of the content of the information contained herein. This press release contains certain “forward-looking statements” and “forward-looking information” as defined under applicable Canadian securities laws. Forward-looking statements or forward-looking information involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward- looking statements or forward-looking information can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “project,” “estimate,” “expect,” “believe”, “future,” “likely,” “may,” “should,” “could”, “will” and similar references to future periods. All statements other than statements of historical fact included in this release are forward-looking statements, including, without limitation, statements regarding the timing of and other procedural matters associated with the Rights Offering; the funds to be raised under the Rights Offering; the expected participation of the Insider Group in the Rights Offering, the proposed use by Zenabis of the proceeds of the Rights Offering, and Zenabis’ proposed plans contained in this press release. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements or information. Important risks and factors that could cause actual results to differ materially from Zenabis’ plans and expectations include the actual results of business negotiations, marketing activities, adverse general economic, market or business conditions, regulatory changes and other risks and factors detailed herein and from time to time in the filings made by Zenabis with securities regulators and stock exchanges, including, but not limited to, those described in the shelf prospectus dated April 9, 2019, a copy of which is available on SEDAR at www.sedar.com. Any forward-looking statement or information only speaks as of the date on which it was made and, except as may be required by applicable securities laws, Zenabis disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Although Zenabis believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance, and accordingly, investors should not rely on such statements.

For more information, visit: https://www.zenabis.com.

Original press release

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