Zenabis Announces $25 Million in Additional Debt Financing and Extension and Partial Conversion of Secured Convertible Notes
Vancouver, British Columbia – August 21, 2019 – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) is pleased to announce that it has today signed definitive documentation with respect to $25,000,000 (the “New Senior Debt“) in new senior secured debt financing (the “Financing“) from R.C. Morris Capital Management Ltd. (“RCM“). The Financing has been effected by way of amending and restating the debenture representing senior secured debt in the principal amount of $25,000,000 provided by the existing senior lender (the “Original Senior Debt“, and together with the New Senior Debt, the “Senior Debt“), such that the amended and restated debenture (the “Amended and Restated Debenture“), in which RCM is now one of the lenders, now represents $50,000,000 in senior secured debt.
The New Senior Debt will bear interest at a rate of 14% per annum, calculated and payable monthly. The Senior Debt will have a maturity date of June 30, 2020. The Company will have the right to prepay any principal amount of the Senior Debt.
In connection with the New Senior Debt, the Company has paid certain customary fees, including a structuring fee to RCM in an amount equal to five percent of the New Senior Debt, and issued RCM warrants exercisable to acquire 902,514 common shares of the Company (each, a “Common Share“) at any time until August 21, 2022 at an exercise price of $1.38502 per Common Share. The exercise price was determined based on the five-day volume-weighted average price of the Common Shares on the TSX immediately preceding the date hereof.
Concurrently, the holders of the subordinated secured convertible notes (the “Convertible Notes“) of the Company have agreed to extend the maturity date of the Convertible Notes to June 30, 2020 and subordinate the Convertible Notes to the New Senior Debt. In consideration thereof, the conversion price of Convertible Notes has been reduced to $1.54635 and the interest rate of the Convertible Notes has been increased to 11%. The Company will also have a right to prepay the Convertible Notes at any time on or after October 17, 2019. The holders of the Convertible Notes have also agreed to convert, effective today and at the new conversion price, 30% of the principal amount of the Convertible Notes, such that the aggregate outstanding principal amount of the Convertible Notes will be approximately $17.4 million. The Company has also issued the holders of the Convertible Notes warrants exercisable to acquire an aggregate of 1,373,712 Common Shares at any time until August 21, 2022 at an exercise price of $1.82 per Common Share.
“We are pleased to be strengthening our financial position through securing this additional senior debt, reducing the principal amount outstanding of our existing secured convertible notes, and extending the maturity date of our existing secured convertible notes,” said Andrew Grieve, Chief Executive Officer of Zenabis. “These developments ensure we have a surplus of capital to complete the expansion of our facilities to achieve an annual design capacity of 143,200 kg of dried cannabis and become cashflow positive upon completion of our current capital program. In addition, we note that Zenabis does not intend to raise incremental debt financing, raise convertible debt, or issue incremental equity capital in order to pursue the expansion of our cultivation capacity. Instead, the next priority of Zenabis is the replacement of the Senior Debt and the Convertible Notes with standard bank financing. Upon completion of a refinancing of the Senior Debt and the Convertible Notes and the transition to a permanent capital structure, Zenabis intends to publish leverage targets to provide for a predictable ongoing capital structure.
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.
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 intentions to raise additional capital, continue the buildout and construction of our facilities, our expected design capacity, complete a refinancing of the Senior Debt and Convertible Notes and publish leverage targets. 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 dated April 9, 2019, 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.