Zenabis (TSXV: ZENA)

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Introduction

Zenabis (symbol: ZENA) is a Canadian Licensed Producer of medical and recreational marijuana formed in January of 2019 via a reverse takeover of Bevo Agro by Sun Pharma. Based out of British Colombia, Zenabis is licensed for both dried cannabis and cannabis oils. With enormous available production space, a number of products under development, distribution relationships, and supply deals, Zenabis has the opportunity to become a global competitor in the cannabis market.

Growing Space

Zenabis has 3.5 million square feet of available production space with their combined facilities in B.C., N.B., and N.S. If these facilities reach full production, Zenabis will be able to produce 479 000kg of cannabis annually as well as 183 000kg of extraction. This does NOT include hemp production. Zenabis has submitted its applications for an industrial hemp license for both Zenabis Aldergrove and Zenabis Pitt Meadows.

Supply/Distribution Deals and LOI’s

Zenabis has a supply agreement with the following provinces/territory: British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Yukon Territory. Zenabis also has relationships with multiple First Nation tribes across Canada. Further, Zenabis has a definitive agreement with Pharamsave pharmacies (primarily with oil) and a supply agreement with Shoppers Drug Mart pharmacies (medicinal cannabis) across Canada.

Internationally, Zenabis has entered into a letter of intent for the following: A supply agreement with a German pharmaceutical company, a supply agreement with a European distributor, a supply agreement with a chain of 15 pharmacies in Malta. Zenabis also has joint-venture plans with companies in Panama and Paraguay to supply cannabis once legalized in those jurisdictions.

Products:

Zenabis is currently only offering dried flower. They are expecting to release pre-rolls, oils, tinctures, and gel gaps sometimes this quarter.

Related image
TRUEBUCH, Zenabis Subsidiary

Additionally, Zenabis plans on the longer-term release of several other products, such as beverages, health and beauty products, and edibles.

Share Structure and Market Cap:

Zenabis currently has approximately 203 million shares outstanding and 250 million shares fully diluted, if all options and warrants are converted. Give the closing price of $1.80 on April 24, 2019, this would give Zenabis a fully diluted market cap of approximately $450 million.

Below is a graph comparing Zenabis’ enterprise value to peers with similar grow space. The graph shows how much smaller Zenabis’ enterprise value is compared to its peers. Of importance is that this graph is from March 18, when Zenabis was trading at $3.44 CDN per share. Given the recent down trend in Zenabis’ share price, as well as the increased cash in hand from the closing of the most recent private placement, the enterprise value of Zenabis would be even smaller.

***Note: Enterprise value is calculated via the following equation:

Enterprise Value = (Market Cap + Total Debt) – (Cash and Cash Equivalents)


Potential Risks

Like any stock, Zenabis comes with potential risks. The share price of the stock has been taking a beating lately. Further, the private placement that Zenabis offered was much below what the share price (SP) was at the time (SP was around $2.75 and private placement was $2.25). Given that the SP was already trading at its lowest levels since the RTO, it was a strange time for management to decide to do a private placement.

Pooling Agreement

CanadianInsider.com

Pooling Agreement explains insider selling shown above. “The Pooling Agreement permits the depositing shareholders to withdraw shares from the Pooling Agreement for the purpose of either pledging such common shares as security for loans to the depositing shareholders, the proceeds of which are to be loaned by them to Zenabis, or entering into securities lending arrangements at the request of, and to support, Zenabis’ financings. Founding shareholders have withdrawn 4,968,644 common shares for the purpose of supporting the first $15 million tranche of Zenabis’ privately-placed convertible debentures (see press release dated March 27, 2019), with such shares having been loaned to the purchasers of such debentures.” (04/10/19 News release)

The insider sold shares (shown below) are used as collateral for the $15 million capital raise from the convertible debenture deal with Eight Capital.

References

Author: Bryan Halabi

Disclaimer: All posts made on this website are provided for information purposes only. None of the information here is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, Company, or fund. Before making an investment decision, you should seek the advice of a qualified and registered securities professional. The Author is not paid to share this content and may or may not own shares in the company.

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