Zenabis Provides Corporate Update
Vancouver, British Columbia – April 30, 2020 – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) today provided a corporate update on its recent activities and the impact of COVID-19 on the market and operations.
Kevin Coft, Chief Executive Officer of Zenabis stated, “We are pleased with the progress that Zenabis has made with respect to the expansion of its range of cultivars as well as the successful commissioning of its extraction line which is now operating at full capacity. The addition of two additional extraction machines will significantly increase our capability to expand production of Cannabis 2.0 and other value-added products. The first harvest of all licensed flower areas of Zenabis Langley is another significant milestone for the Company and will enable us to continue to expand our revenue. With respect to COVID-19, we are very pleased that to date there have been no COVID-19 cases in any of the Company’s locations and that Company operations have thus far been unaffected. Zenabis continues to monitor the situation closely and is taking every step to mitigate any impact to its workforce and customers.”
Zenabis Atholville remains in steady-state production from a cultivation standpoint, with March harvests below design capacity for the facility, but within expected variance. After completing extensive phenotype hunting on its seed bank, Zenabis Atholville has commenced commercial cultivation, or will shortly commence commercial cultivation, of a number of additional cultivars either unavailable or with low availability in the Canadian recreational market. This includes four cultivars in the 16-22% or 18-25% target THC range, and nine cultivars in the 20-28% to 24-32% target THC range. Zenabis anticipates commercial rollout of these products on a staggered basis commencing in July. The Company anticipates that the listing and sale of additional cultivars with higher THC ranges will assist in combatting pressure on average selling prices across the industry.
Zenabis Atholville was nearing harvest on its first contract cultivation agreement product as of the end of March, which was subsequently completed in April, for a not previously disclosed contract cultivation agreement.
Atholville’s current extraction machine has now reached steady-state production and is processing approximately nearly 1,000 kg of biomass per month. Due to demand for extraction output for Cannabis 2.0 and other products, the Company is currently in transferring two additional extraction machines of the same type from Zenabis Delta to Zenabis Atholville. These additional lines are expected to be fully operational by the end of Q2 2020.
Zenabis Langley had not yet achieved a harvest from all licensed areas as of March, but has subsequently achieved a harvest from all licensed flower areas as of the end of April. As harvests at the facility as subject to available sunlight, it is anticipated that the strongest harvest months of the year will occur in the summer months. The Company expects to be able to utilize a variety of harvest data over the course of the calendar year to be able to assess target performance versus design capacity. At this time, the Company considers current volumes produced in aggregate between Zenabis Langley and Zenabis Atholville to be sufficient to meet current market demand. Zenabis expects to be able to complete additional production areas as market conditions dictate.
Zenabis Stellarton continues to remain focused on pre-roll production. This facility, although licensed by Health Canada for cannabis cultivation and processing, has experienced a substantial delay with respect to being granted a sales license by Heath Canada, in part as a result of the suspension of onsite sales license inspections as a result of COVID-19. As such, at this time substantial packaging activities continue at Zenabis Atholville given its existing sales license. The Company anticipates transitioning the majority of packaging and sales activities at Zenabis Stellarton upon receipt of the sales license for this facility.
Cannabis 2.0 Update
The commissioning of HYTN Beverages Inc.’s cannabis-infused sparkling water beverage production line at Zenabis Stellarton is ongoing, but has been delayed by four to six weeks as a result of COVID-19 related travel restrictions. Initial provincial demand for HTN’s products remains high, and the Company still expects first shipment of these products in Q2 2020.
PAX Era Pods
Production of PAX Era vape cartridges continues to ramp up and Zenabis expects to achieve full production of approximately 30,000 cartridges per month in May. Additionally, the Company has now increased its penetration of this product with its provincial distributors, and its PAX Era pods are now listed in 10 provinces and territories.
Recreational Cannabis Demand
The Company has experienced significant incremental interest in its discount brand, Re-Up, during the COVID-19 crisis, whereas demand for higher-priced product has softened marginally. Provincial counterparty focus has been on increasing listings for Re-Up flower, and the Company now has 28 g package listings with six provincial counterparties, and 15 g package listings with eight provincial counterparties. Olen Vanderleeden, Chief Revenue Officer, remarked, “End-customer focus on discount product offerings has remained incredibly strong, and has in fact increased during the COVID-19 crisis. From our perspective, and that of our provincial counterparties, it appears that end-customer demand is essentially unconstrained in this pricing category at this time.”
In addition, the Company was also able to enter into a brokerage arrangement with one existing contract cultivation counterparty to provide distribution across Canada of their products beyond their current markets.
Floral and Propagation Business (Bevo)
The floral and propagation business of Zenabis, Bevo Farms Ltd., has not experienced a material impact in realized revenue, and does not anticipate a material impact on revenue as a result of COVID-19.
Canada Emergency Wage Subsidy
The Company has reviewed the programs that various levels of government have made available to businesses to mitigate the economic impact of COVID-19, including the Canada Emergency Wage Subsidy (“CEWS”) program. The Company qualifies for assistance under this program and has completed the necessary applications. If approved, the Company expects to receive approximately $2 million of funding. The Company continues to monitor its eligibility under existing and future programs and will access these programs as applicable.
Health and Safety
To date, Zenabis has had no confirmed cases of COVID-19, and we continue to operate all facilities at steady state. Zenabis continues to closely monitor this situation in order to identify and mitigate risks to its customers, workforce and operations. To date, the Company has not experienced any material impacts to its facilities’ operations.
Supply Agreements, Contract Cultivation Agreements, and Bulk Market Cannabis Sales
Demand for bulk cannabis has varied considerably by counterparty (including supply agreement, contract cultivation agreement, and bulk market cannabis counterparties), with this variation appearing to be impacted by counterparty liquidity, end-consumer recreational cannabis demand, and THC-level of available cannabis. Counterparty reaction to the COVID-19 crisis has ranged from deferral of pickup of orders, to requests to reduce or eliminate volumes under contract cultivation agreements, to requests for alternative products. In one case, the Company expects to commence arbitration with respect to a prepaid supply agreement after considerable deferrals of pickup of accepted offers and other disagreements. In contrast, the Company has also recently executed two additional bulk sales agreements, as well as an additional contract cultivation agreement, demonstrating that the market response has not impacted all LPs equally. In addition, international demand appears to remain strong, with considerable inbound requests for international supply. Kevin Coft, Chief Executive Officer of the Company, remarked, “We remain committed to working with all of our bulk counterparties to continue product delivery during this crisis, and anticipate adapting rapidly to changing consumer product and price preferences.”
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. Zenabis currently has 96,400 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.
Zenabis expects its Zenabis Atholville, Zenabis Stellarton and Zenabis Langley facilities to be in steady state production in 2020. The Zenabis brand name is used in the cannabis medical market, the Namaste, Blazery, and Re-Up 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: the Company’s organizational and strategic review and forecast of demand; the Company’s focus on aligning its resources to meet the needs of consumers; the expected timing and completion of current and planned conversion, expansion and optimization of our facilities, including Zenabis Langley; our plans for Zenabis Delta; the expected submissions of license amendment applications and site evidence packages; the licensing of our facilities and projected timing thereof; our expectations for our extraction projects, equipment and capacity; our expectations for processing output; our expectations regarding our packaging equipment; and the expected content of future operational updates. 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. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements or information contained in this news release. 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.