Zenabis Provides Operations Update for August 2019
Vancouver, British Columbia – September 18, 2019 – Zenabis Global Inc. (TSX:ZENA) (“Zenabis” or the “Company”) is pleased to provide an update on its recent facility construction and licensing activities and its recent cannabis production results.
- With respect to production results:
- Cultivation output in August 2019 was 1,996 kg of dried cannabis, production at Zenabis Atholville outperformed the revised design capacity by 40.9% (the Performance Ratio1).
- Cultivation output of 1,996 kg of dried cannabis was 26.4% greater than Zenabis’ revised forecast output (as updated on August 6, 2019) of 1,579 kg of dried cannabis.
- With construction and licensing at Zenabis Atholville largely complete, Zenabis is now focusing on construction and licensing at Zenabis Langley. Zenabis Langley construction continues, with Zenabis’ total annual cultivation capacity expected to increase to 143,200 kg of dried cannabis on completion of licensing at Zenabis Langley.
- Zenabis intends to submit a license amendment application for Zenabis Langley’s existing cultivation license by the end of September (to include additional growing and processing areas for Zenabis Langley Site A – Part 2A). Once approved, Zenabis’ total licensed annual production capacity will increase by 39,400 kg to 96,400 kg (assuming receipt of the Zenabis Atholville Phase 2C – Part 2 license amendment).
- Zenabis has launched Re-Up, Zenabis’ high value, low cost cannabis brand. Under the Re-Up brand, Zenabis expects to provide various cannabis products to consumers at a competitive price.
Andrew Grieve, Chief Executive Officer of Zenabis, stated, “August output was more than 60% greater than any prior month. Through to the end of October we expect the variety of cultivation approaches and rapid scale-up of the facility to result in significant room by room variance, after which we expect to achieve steady-state yields for each cultivar at Zenabis Atholville. We expect general steady-state operations in Atholville by December of 2019.”
Cannabis Production Summary
In August 2019, Zenabis realized a total harvest weight of 1,996 kg of dried cannabis.
The amount harvested at Zenabis Atholville for the three months ending August 31, 2019 exceeded the revised design capacity of the flower rooms by an average of 23.2%, compared to 7.2% in three-month period from May 2019 through July 2019. A month-to-month comparison of actual harvests compared with harvest forecast based on revised design capacity between January 2019 and August 2019 for Zenabis Atholville is provided in the table below.
|Revised Design Capacity Performance at Zenabis Atholville||Jan
|Actual Harvest Weight||474 kg||480 kg||518 kg||809 kg||908 kg||756 kg||1,238 kg||1,912 kg||7,095 kg|
|Revised Design Capacity Harvest Weight2||467 kg||643 kg||539 kg||796 kg||895 kg||716 kg||1,097 kg||1,357 kg||6,510 kg|
|Difference (kg)||7 kg||(163 kg)||(21 kg)||13 kg||13 kg||40 kg||141 kg||555 kg||585kg|
|Difference (%) – Revised “Performance Ratio”||1.5%||(25.3%)||(3.9%)||1.6%||1.5%||5.6%||12.9%||40.9%||9.0%|
2 The Design Capacity Harvest Weight is based on the “design capacity” yield that Zenabis has disclosed to date. This figure was derived by converting the actual square footage of flower room space and the forecast canopy for each specific flower room into a kilograms per room per day figure based on Zenabis’ historical yield data at the Zenabis Atholville facility based on the yield performance in the three months ending June 2019 for revised design capacity. The Design Capacity Harvest Weight in the table above is the harvest weight that would have resulted if the Design Capacity Yield Per Day for a room was multiplied by the Effective Flower Room Equivalent Days, as defined under “Performance Ratio”. Zenabis has revised its design capacity at Zenabis Atholville upwards by 35% (equal to Zenabis Atholville’s Performance Ratio for the three months ended June 30, 2019) from 34,300 kg per annum to 46,300 kg per annum. Zenabis no longer reports outperformance relative to original design capacity (the kg/day figure utilized to derive the 34,300 kg original design capacity for Zenabis Atholville).
In August 2019, Zenabis completed eight harvests at Zenabis Atholville. The average Performance Ratio for these harvests was 40.9% relative to the revised design capacity. In August 2019, Zenabis also completed its first harvest at Zenabis Stellarton. Previous design capacity performance summaries have only disclosed performance at Zenabis Atholville, and given Zenabis Stellarton is not a key cultivation facility, Zenabis does not intend to report a performance ratio for Zenabis Stellarton.
2019 Harvest Forecast – Zenabis Atholville, Zenabis Stellarton and Zenabis Langley Site A – Part 1
For its existing licensed facilities of Zenabis Atholville, Zenabis Stellarton and Zenabis Langley Site A – Part 1, Zenabis expects to produce approximately 14,8883 kg of dried cannabis from September through December of 2019. The following table sets out Zenabis’ estimated monthly harvests for Zenabis Atholville, Zenabis Stellarton and Zenabis Langley Site A – Part 1 for the remainder of 2019.
|Forecast3||1,212 kg||1,579 kg||1,731 kg||3,758 kg||5,199 kg||4,200 kg||17,679 kg|
|Actual||1,238 kg||1,996 kg||3,234 kg|
3 This forward-looking estimate of future harvest results is based on the following material assumptions: (1) Zenabis Stellarton and Zenabis Langley Site A – Part 1 operate at their published design capacity on a room by room basis for the cultivation space that is licensed and in cultivation at the forward-looking periods noted; (2) Atholville rooms operate based on the current flower schedule and at revised design capacity (a 35% increase relative to original design capacity)); and (3) Cultivation commencement at Zenabis Langley Site A – Part 1 in September 2019.
Zenabis intends to provide a monthly cultivation forecast for Zenabis Langley Site A – Part 2 upon receipt of the cultivation license amendment for this phase.
The timeline from harvest to the point at which Zenabis completes a sale of that product ranges from a minimum of three weeks (in the case of a bulk sale to a licensed producer) to more than eight weeks (in the case of soft gel capsules which involve external extraction, processing, filling, packaging and shipment). Zenabis recognizes the revenue from completion of such sales in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Construction and Facility Update
Now that construction is substantially complete4 at Zenabis Atholville, Zenabis is now focused on operational improvements to reduce operating costs (increasing packaging automation, for example) and post-harvest processing.
Zenabis is currently in the process of upgrading its extraction capacity at Zenabis Atholville to 55,200 kg of extraction capacity using equipment being relocated from the Zenabis Delta extraction project. This upgrade is expected to be complete by November 2019, and will provide Zenabis with the capacity to fill vape cartridges at both Zenabis Delta and Zenabis Atholville when and as permitted under applicable laws. The table below provides outlines Zenabis’ revised extraction design capacity:
|Extraction Design Capacity||Prior Plan||New Plan|
|Zenabis Atholville||18,000 kg||55,200 kg|
|Zenabis Delta||165,600 kg||110,400 kg|
|Total||183,600 kg||165,600 kg|
Zenabis is currently removing the original extraction machine from Zenabis Atholville and is determining the appropriate course of action for this machine which has an annual extraction design capacity of 18,000 kg.
The first phase of Zenabis Langley is now complete and licensed for cultivation activities (Zenabis Langley Site A – Part 1). Zenabis is currently converting the second phase of the first 10 acres at Zenabis Langley (Zenabis Langley Site A – Part 2). For reporting purposes, Zenabis has now split Part 2 into two phases (Part 2A and Part 2B).
Site A is divided into six flower zones, which are similar to those in an indoor facility, but much larger in size. A summary of construction status by phase is provided below:
|Site A – Part 1||
|Site A – Part 2A||
|Site A – Part 2B||
On September 6, 2019, Zenabis received a cannabis processing license for Zenabis Stellarton. Zenabis commenced pre-roll production at Zenabis Stellarton during the week of September 9, 2019. Zenabis’ current pre-roll production capacity at Zenabis Stellarton is estimated at ~400kg of pre-rolls per month. Zenabis intends to achieve output of 1,200 kg of pre-rolls per month at Zenabis Stellarton by November 2019 subject to market demand for pre-rolls.
Zenabis is currently in the process of constructing extraction and post-processing capacity, a product development lab, a formulation design lab, and a full ISO certified analytical testing lab at Zenabis Delta. This construction project is expected to be complete by the fourth quarter of 2019.
Zenabis is currently in the process of various licensing activities for Zenabis Delta, Zenabis Atholville, Zenabis Langley and the Zen Craft Grow program as outlined in the table below:
|License Submission||Submission Month||Annual Design Capacity|
|Zenabis Delta – Analytical Testing||June 2019||N/A|
|Zen Craft Grow – Grower 1||July 2019||350 kg|
|Zenabis Atholville Phase 2C – Part 2||August 2019||3,000 kg|
|Zenabis Langley Site A – Part 2A||September 20195||39,400 kg|
|Zenabis Langley Site A – Part 2B||November 20195||46,800 kg|
5 Expected submission timeline subject to receipt of prior license or license amendment for each facility.
Zenabis is currently using Zenabis Pitt Meadows, Zenabis Aldergrove and Zenabis Langley for our propagation and floral business, as well as hemp cultivation activities. All hemp cultivation at Zenabis Aldergrove that uses greenhouse space is in space currently not being used by the propagation and floral business. As a result, this will not have a negative impact on Zenabis’ propagation and floral business. Hemp cultivation will neither interfere with the planned cannabis cultivation activities at Zenabis Langley, nor will it reduce the cannabis cultivation design capacity of Zenabis Langley.
Launch of Re-Up
Re-Up, Zenabis’ latest recreational brand has been launched with the aim of providing consumers across Canada with various cannabis products that were created under the concept of “no waste, no fuss, and no compromise”. Re-Up’s containers and labels have been chosen to minimize the use of inks and dyes, and to be easily recyclable. Available in pre-roll and dried flower formats, Re-Up products will be available for purchase in New Brunswick and Saskatchewan by the end of October, with several other provinces to follow in Q4 2019.
1 To better reflect the actual performance of its facilities, the Company reports a Performance Ratio, calculated as follows: after each harvest, Zenabis calculates the dry weight cannabis output for each room (the “Total Output”), taking into account the amount of days in production through a combination of: (1) the amount of flower room days used (including turnaround time) for that room; and (2) the amount of flower-room equivalent days required from other flower rooms in support of that harvest (together the “Effective Flower Room Equivalent Days”). Zenabis then divides the Total Output by the Effective Flower Room Equivalent Days in order to produce the “Effective Yield Per Day” for each room, and then divides the Effective Yield Per Day by the Design Capacity Yield Per Day for each room in order to determine actual performance versus the Design Capacity Yield Per Day (this ratio being the “Performance Ratio”). Zenabis believes that the Performance Ratio will provide investors with the best measure of actual cultivation performance versus Zenabis’ published design capacity. Zenabis intends to update and publish updated design capacities for each of its facilities when a facility has harvested from all its flower rooms (with the update at that time reflecting the most recent performance from each flower room) and again, if required due to significantly different results, when a facility achieves consistent monthly performance at a level that is different from its published Design Capacity. Zenabis revised its design capacity at Zenabis Atholville upwards by 35% (equal to Zenabis Atholville’s Performance Ratio for the three months ended June 30, 2019) from 34,300 kg per annum to 46,300 kg per annum. Zenabis no longer reports outperformance relative to original design capacity (the kg/day figure utilized to derive the 34,300 kg design capacity)
4 Zenabis defines substantial completion as the ability to undertake (subject to licensing) all production activities within the design capacity of the facility.
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 under its existing capital plan. 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 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: the projected kilogram yield of licensed facility space and facility space in the process of, or scheduled for, construction and/or licensing; our expectations for future harvests; the expected timing and completion of current and planned conversion, expansion and optimization of our facilities, including Zenabis Atholville and 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; the timelines projected for the commencement of cultivation at Zenabis Langley; the effect of hemp cultivation on our cannabis cultivation abilities; 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. 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.