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VANCOUVER, April 29, 2019 /CNW/ – Zenabis Global Inc. (TSXV:ZENA) (“Zenabis” or the “Company“) is pleased to provide a comprehensive update on its recent cannabis production figures; the results of its current growing approach on harvest yield; facility construction and licensing status; anticipated future harvest; and latest corporate developments, including management changes. In addition, the Company has filed the financial statements and MD&A for Sun Pharm Investments Ltd. (“Sun Pharm”, representing Zenabis’ cannabis business prior to the amalgamation with Bevo Agro Inc.) for the year ended December 31, 2018 on SEDAR.
“We are excited to initiate monthly updates on the status of Zenabis’ operations, which we believe is necessary given the pace of growth and ramp-up,” stated Andrew Grieve, Chief Executive Officer of Zenabis. “Since January, when Zenabis was created as a result of the amalgamation of Sun Pharm and Bevo, we have increased our cultivation design capacity from 7,000 kg to 10,200 kg, submitted license amendments for an additional 13,000 kg of design capacity at Zenabis Atholville, and intend to significantly increase our cultivation design capacity to 131,200 kg by the third quarter of this year. In addition, we are achieving excellent cultivation results due to the strong leadership of our Chief Growing Officer, Leo Benne, and the diligent efforts of the entire cultivation team.”
Cannabis Production Summary
For the six months between October 2018 and March 2019, Zenabis’ Atholville facility cultivated and dried a total of 2,293 kg of cannabis. Production increased month over month, and the amount harvested exceeded the design capacity of the flower rooms by an average of 9% over the six-month period, and an average of 11% over the three-month period from January 2019 through March 2019 (see table below). Between October 2018 and March 2019, Zenabis Delta cultivated and dried a total of 61 kg of cannabis. A month-to-month comparison of actual harvests compared with harvest forecast based on design capacity between October 2018 and March 2019 is provided in the table below.
The design capacity of Zenabis’ facilities was calculated and presented in the Bevo management information circular dated November 23, 2018, using historical yield through September 2018 available at that time. Zenabis intends to update and publish an updated design capacity for each of its facilities when:
The growing team at Zenabis Atholville – led by Chief Growing Officer, Leo Benne – utilized an alternative growing approach for one of the flower rooms at the facility with the aim of maximizing yield per day. The first harvest using this approach was completed in late March and yielded 225 kg of cannabis compared with the room’s Design Capacity Harvest Weight of 153 kg, reflecting outperformance of 47%.
Mr. Benne stated, “I am grateful for the diligence of the entire growing team across Atholville, Stellarton, and Delta and we look forward to delivering consistent and healthy cannabis crops from all of our facilities across Canada.”
2019 Full Year Harvest Forecast – Zenabis Atholville and Zenabis Stellarton
For its existing licensed facilities of Zenabis Atholville and Zenabis Stellarton (and excluding Zenabis Delta), Zenabis expects to produce approximately 13,300 kg from April through December of 2019. The following table sets out Zenabis’ estimated monthly harvests for Zenabis Atholville and Zenabis Stellarton for the remainder of 2019.
Upon receipt of its cultivation license at Zenabis Langley, Zenabis intends to provide a monthly cultivation forecast for the Zenabis Langley facility.
Construction Update and Anticipated Harvest Yields
Zenabis Atholville (Indoor)
The 380,000-square-foot Zenabis Atholville indoor facility is currently licensed to produce cannabis from 136,800 square feet with a production design capacity of 10,200 kg. Zenabis is in the process of constructing and licensing additional flower rooms and support space to expand cultivation capacity in three blocks divided into “Phase 2A” consisting of 38,100 square feet; “Phase 2B” consisting of 76,700 square feet; and “Phase 2C” consisting of 118,000 square feet. Specific updates are provided below:
Zenabis Langley (Greenhouse)
Zenabis is currently converting the first 10 acres of the greenhouse property (“Site A”) following the successful transfer of all floral and propagation business from Site A to Zenabis Aldergrove. Drying, trimming and storage room installation is ongoing. Floor coatings have been completed in one flower room and most operational support rooms. Security system planning and installation is ongoing. All other major equipment such as lighting, heating, HVAC has been ordered, and some lighting and HVAC equipment has arrived onsite.
Site A is divided into a number of flower rooms, which are similar to those in an indoor facility, but much larger in size. Construction of the flower rooms is expected to be completed between June and August, with the first phase of construction completed by the end of June, and construction substantially complete for all rooms by the end of July. Site A has a design capacity of 96,100 kg.
Zenabis is currently in the process of various licensing submissions for Zenabis Langley, Zenabis Atholville, Zenabis Pitt Meadows and Zenabis Aldergrove as outlined in the table below:
Zenabis is currently using Zenabis Pitt Meadows, Zenabis Aldergrove, and Zenabis Langley for the propagation and floral business. Zenabis intends to grow hemp on available land at the Zenabis Pitt Meadows and Zenabis Aldergrove facilities upon receipt of industrial hemp licenses from Health Canada. Zenabis intends to grow hemp on available land and in available greenhouse space at the Zenabis Langley facility upon receipt of an industrial hemp license from Health Canada.
Mike Smyth has begun his tenure as Chief Financial Officer of Zenabis, earlier than the originally announced start date of May 14.
Mr. Grieve remarked, “Bringing a wealth of experience in the capital markets and connections within the cannabis industry, Mr. Smyth will be taking the lead on exploring numerous financial options available to the Company to ensure that it moves forward in a position of financial strength to grow its business.”
In addition, John Kondrosky, Zenabis’ Chief Operating Officer, is leaving the Company to take on a leadership position with another cannabis company. Following Mr. Kondrosky’s departure, the Company intends to operate with its indoor facilities (Zenabis Atholville, Zenabis Stellarton, and Zenabis Delta) being led by a division manager, as Zenabis no longer requires a pan-enterprise Chief Operating Officer. Zenabis is grateful to Mr. Kondrosky for his contributions to the company and wishes him the best in his future endeavours.
Monty Sikka, Chair of the Board, stated, “We are incredibly grateful for the leadership John provided as we built Sun Pharm, and then subsequently as John managed the rapid scale up and ongoing operational readiness at our indoor facilities to support our successful launch into the legal adult recreational market in Canada.”
Filing of Financial Statements
Zenabis has filed on SEDAR the financial statements and associated MD&A for Sun Pharm for the year ended December 31, 2018.
“These financial statements reflect only the initial period of Zenabis’ rapidly expanding business in the last quarter of 2018, during which sales of cannabis for the adult-use market were first legalized in Canada,” stated Mr. Grieve. “We anticipate releasing Zenabis’ financial statements and MD&A for the first quarter of 2019 by the end of May, which will reflect our stronger harvests and the financing activities that have occurred during the quarter that will enable us to achieve our expansion objectives.”
Secured Convertible Notes
On April 24, 2019, Zenabis gave notice to the principal holders of its Secured Convertible Notes issued in October 2018 that the recently completed equity offering of units for gross proceeds of $28.7 million would be deemed to constitute a “Liquidity Event” (see definition reproduced in Note 9(c)(i) to Sun Pharm’s financial statements for the year ended December 31, 2018) for the purposes of determining the conversion price of their Secured Convertible Notes. There is no contemplation of any subsequent “Liquidity Event” or further repricing in the documentation of the Secured Convertible Notes.
Based on a 25% discount to the offering price of $2.25 in accordance with the definition provided, the conversion price on the Secured Convertible Notes is now $1.69. This will result in the aggregate principal amount outstanding under the Secured Convertible Notes of $24,864,204, if fully converted, being convertible into a maximum of 14,734,339 common shares (the change in conversion price resulted in an increase in the maximum number of shares issuable upon conversion of the Secured Convertible Notes by 4,84