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Zenabis Global Inc (CVE:ZENA) Announces $75 Million Convertible Debenture Deal with Eight Capital

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Zenabis Global Inc (CVE:ZENA) (OTCMKTS:ZBISF) (FRA:2VV) CEO Andrew Grieve shares details of the company’s letter of engagement with Eight Capital. Under the terms of the deal, Eight Capital agrees to purchase 15,000 unsecured convertible debentures, guaranteeing Zenabis $15 million in capital. Eight Capital has also agreed to offer for sale an additional 60,000 convertible debentures, to bring the total financing to $75 million. Grieve indicates the proceeds from the convertible debentures will be used to continue the conversion of four production facilities across the country. Zenabis entered the Alberta recreational market in February when it signed a supply agreement with the AGLC. Zenabis products will be available in the Quebec market in Q2, as the company signed a supply agreement in February with the SQDC. Zenabis now has supply agreements with 9 provinces and territories and recently inked a supply agreement with retail behemoth Shoppers Drug Mart.

Transcript:

Narrator: Zenabis Global Inc. is a Canadian-based licensed cannabis cultivator of medical and recreational cannabis within New Brunswick, British Columbia and Nova Scotia.

Once their facility space is fully built, Zenabis will own and have access to 660,000 square feet of high-quality indoor cannabis production space, as well as 2.1 million square feet of greenhouse space at its Langley facility.

Zenabis has established distribution relationships with government and third party retailers and distributors in 9 Canadian jurisdictions. The company has also announced an agreement with Shoppers Drug Mart to serve medical patients across Canada.

Zenabis Global, Inc. is listed on the TSX Venture under the ticker symbol, ZENA.

Howard Glassman:   Well, what a pleasure to welcome the CEO of Zenabis –

Andrew Grieve: Zenabis.

Howard Glassman:   Zenabis. And you know, here’s the weird thing: for about the last 20, 30 seconds I’ve been practicing saying Zen-abis, not Zenabis. Anyway, the real thing is this: he’s the CEO of Zenabis Global, Andrew Grieve. Welcome.

Andrew Grieve: Thank you.

Howard Glassman:   You know, we were just sitting here talking to you and we’re going to get into all kinds of questions about investing, about how the stock is doing, how the company’s doing. But I gotta tell you, just listening to you tell me a bit about your background, and how you came from, you know, what did you say? Investor –

Andrew Grieve: Investment banking, essentially.

Howard Glassman:   Investment banking, and now here you are, rocking the cool lid, the cool t-shirt – you’re like the quintessential, to me you look like the quintessential cannabis investment executive. It’s like you’ve got this cool thing, but you’ve also got all this background in finance that allows you to run a company like yours. So, congratulations.

Andrew Grieve: Oh, thank you very much.

Howard Glassman:   Is it more fun sort of running a cannabis, you know, gig, versus working in Brooks Brothers suits all day?

Andrew Grieve: Absolutely. Yeah, I much prefer to be dressed like this, and to be wearing the hat of the company that I run, than work in a suit each day and negotiate with other bankers.

Howard Glassman:   Well, I can’t imagine that there’s a – it’s such an exciting time to be in this field. And we’ve got so many things to get to, let’s just do it in order of, you know, it’s happened just recently: on the 4th of March, your company entered into a letter of engagement with Eight Capital under which Eight Capital has agreed to purchase 15,000 unsecured convertible debentures.

Why don’t you take it from there, Andrew, and just explain to us – explain to me like I’m a baby child, exactly what this means for your company and how it’s going to affect the company going forward.

Andrew Grieve: Eight Capital guaranteed us $15 million in capital, and in addition, they’re going to secure us an additional $60 million in capital, all of which be utilized for converting our existing facilities. We have four facilities across the country: In Delta, in Atholville, New Brunswick, in Stellarton, Nova Scotia, where that facility just received its cultivation license, and in Langley, in British Columbia.

So we’ll be using the $75 million in order to complete the – or, in order to continue the conversion of our facilities.

Howard Glassman:   And Delta is in the interior of BC?

Andrew Grieve: Delta is also in British Columbia. It’s also on the Lower Mainland.

Howard Glassman:   And so, in practical terms, this just gives you more growing space, a chance to grow more product, increase the amount you can make – and when, so this is taking effect immediately; when will the effect of this, take effect?

Andrew Grieve: If you look at our construction profile at the moment, our Atholville facility will be complete by June of 2019. That’ll have 34,000 kilograms of production.

Our Stellarton facility will have the next 4,000 kilograms complete within the next couple of months, and then we’ll decide from there what to do with the remainder of that facility.

But our Langley facility, upon full build-out, will have 426,000 kilograms of production capacity, and will have the first more than 90,000 kilograms of production capacity complete by June of 2019.

Howard Glassman:   So in layman’s terms – and I’ve been sort of nibbling around the cannabis space for a couple of years now, and it seems to me the companies that are going to be the leaders, the most successful; companies like yours – are the ones that are going to have the most capacity. Is that not kind of what you’re all shooting for?

Andrew Grieve: Absolutely. It’s not just capacity, it’s also capacity that has with it a low marginal cost of production.

Howard Glassman:   Well, of course.

Andrew Grieve: So if you had a significant amount of capacity but it was very expensive to actually produce in that facility, then your capacity wouldn’t necessarily be relevant long-term because you’d be pushed out of the market by lower-cost producers. It’s essential to have both the capacity and to have that capacity have a low marginal cost of production. And that’s what we’re going to achieve.

Howard Glassman:   So I – in essence, I’m correct in saying that the company that gets the most capacity at the lowest cost the quickest, will have an advantage when it comes to market. And that’s why Eight Capital’s engagement with you is so important, because it does increase your capacity. And, I’m assuming, keeps your costs down.

Andrew Grieve: It increases our capacity, and then we are building our facilities in a way where we have a very low marginal cost of production.

Howard Glassman:   Okay, next up on the – there’s so many things that have been going on with your company. You’ve just been approved to cultivate and grow at your 255,000 square foot facility in Stellarton, Nova Scotia. This represents your third facility in Canada, licensed to grow, adding a design capacity of 18,500 kilograms of dried cannabis a year. What is that all about?

Andrew Grieve: That is all about the fact that we are now able to grow in our Nova Scotia facility.

Howard Glassman:   Right.

Andrew Grieve: I was there this week on Monday to make the announcement; the announcement was attended by the MP, Sean Fraser. It was attended by the local MLA, it was attended by the Chief of the Millbrook First Nations, it was attended by the mayor…

Howard Glassman:   Unbelievable.

Andrew Grieve: Everybody was absolutely ecstatic about the fact that we had our facility approved, we’ve started cultivation there, we’re bringing jobs to this community, and we’re going to continue to build out that facility.

And we’re absolutely excited as well, because not only are we building that out, but we’re excited about delivering for community stakeholders, too. One of our core values is delivery of stakeholder value, and that may mean delivery of shareholder value, but it also means delivering for our employees and delivering for our local communities.

For example, in New Brunswick, we have 231 employees now working at our Atholville facility. I was there the last two days speaking with them; to me, delivery of stakeholder value also means ensuring that they have fantastic jobs, the ability to move up and progress in a brand new industry, and really to bring those communities opportunities.

Howard Glassman:   There’s so many things about what you just said. I just find it fascinating, as somebody that’s nearly 60 years old, you know, and grew up in an environment of, you know, cannabis being illegal and quiet and hush-hush, and, you know, you don’t want anybody to know; all of a sudden, you know, when I hear you talk about, you know, opening a facility and the mayor’s there, and all the dignitaries of the town, and everyone’s out there in nice lab coats and cutting ribbons and things – I just think it’s amazing.

And you know, there’s a lot of people that suffered a lot in this country, medicinally, recreationally, and now all of a sudden, you know, there’s a guy like you that brings all this expertise and is opening facilities across the country, and as you say, not just for shareholder value but with an eye to a modern…like, people your age, it’s like you have a sense of community as it relates to your own employees, which I think is fantastic.

Andrew Grieve: Oh, absolutely. And I think it’s essential. But what you were talking about is the fact that the government of Canada chose to give people choice, and they didn’t just choose to give people choice from a recreational standpoint, where people choice; people deserve to have the right to decide how they want to have fun.

But from a medicinal standpoint, people don’t deserve to have the right to choose how to deal with their ailments?

Howard Glassman:   Yes.

Andrew Grieve: And when you have the acceptance of the concept of choice, then it’s amazing, and it can be amazing for communities, for employees, but also for the people who want to use this product. And it’s the right thing to do, to give people choice.

Howard Glassman:   Just quickly before I leave the fact that your, you know, part of you’re raison d’etre, your reason to be as a company, and you as a human being, it seems to me is to make sure that people who work for you, are having a more modern experience. You know, when I was your age, to even 25 years ago, I don’t think companies cared about the health and welfare of their own employees. And I think it cultivates a different type of company. And again, if I was looking to invest in a cannabis company, I might want to look and see how you treat the people that work for you and with you, as well as the shareholder value you bring.

Andrew Grieve: I was –

Howard Glassman:   Does that seem too sappy to you? Because I think it’s important, you know?

Andrew Grieve: I don’t think it is sappy, because another component of what of our values, or one of our values, is responsibility.

Howard Glassman:   Yes.

Andrew Grieve: And responsibility, again, is this component where you need to have your employees take responsibility, and you as an individual need to take responsibility.

I was in the facility yesterday in Atholville, and one of the employees walked up to me and he said ‘I know that you don’t get paid, and I think it’s amazing that you’re willing to bet on the success of the company and not take a salary.’ I said absolutely, but I’m not just betting on the success of the company; I’m betting on all of the people who are going to contribute to the success of the business. And so you, as employees, are just as important to me as I am to you, because I can’t earn a dollar from doing this work until June of 2021. And the thresholds for me to actually get paid for being the CEO are incredibly high. I set them.

And my perspective was, it really – those thresholds are the right thresholds, where if I don’t meet those thresholds, I deserve nothing, because I haven’t delivered for the employees, and I haven’t delivered for the shareholders.

Howard Glassman:   Well again, that’s a very sort of 2019 approach to – wait a second, let’s go back to the part where you say, you know, I’m getting paid? Okay, forget that.

Andrew Grieve: I don’t get a salary or a short term incentive plan.

Howard Glassman:   Really? All right. Well, you’ve got a nice pen; I borrowed your pen.

Andrew Grieve: No, I’m pretty sure it’s your pen, and I can’t even get a pen!

Howard Glassman:   Do you get free hats and stuff?

Andrew Grieve: I actually paid for this hat to be made personally.

Howard Glassman:   Oh, come on!

Andrew Grieve: No, I did!

Howard Glassman:   This guy’s too – you know what, this guy’s too good. A couple of quick things before I let you go: you talked about choice. You said, I’m just reading here your recent letter of intent with Societe Canada du Canabis, to supply your premium cannabis products to Quebec. That’s going to happen in the second quarter of 2019 – I guess that’s just another distribution channel you’re happy about?

Andrew Grieve: Absolutely. We’re very excited. We have developed fantastic relationships with provincial counter-parties across this country, and we’ve done it by being open in terms of our approach to them, telling them exactly what we have, what we can deliver, and when we can’t; and people have responded by wanting to be our customers.

Howard Glassman:   Okay. A lot of people fascinated about you and your stock. We have a question from Twitter: Please provide more detail on how Zenabis intends to work with and expand through partnerships and First Nations communities.

Andrew Grieve: A lot of great examples, here. The Millbrook First Nation from Nova Scotia was in attendance at the opening of our Stellarton facility, Chief Bob Gloade.

Howard Glassman:   Yeah, you mentioned that.

Andrew Grieve: And part of what we talked about – sorry, first of all, he’s an investor in Zenabis. That First Nation made a $5 million investment in our company, and we’re incredibly grateful for what they’ve done for us, and for their willingness to invest. He wanted to talk about jobs, economic opportunities for his region, how he could ensure that we considered people from his community for employment, and part of what he wanted to talk about was the fantastic program that we have with the Listuguj First Nation out of Quebec, who’s right across the river from us in New Brunswick at our Atholville facility.

We have a cultivation technician training program with the Listuguj; we employ a significant number of people from the Listuguj First Nation. They invested $3 million in our business, and we’re very excited to have them as partners. Chief Darcy from the Listuguj is an incredibly forward-thinking individual and really is doing the right thing for his community.

Howard Glassman:   Well, as I said to you a minute or so ago, Andrew, it seems like there’s a whole ethical aspect to the way you do business, to the way Zenabis is planning to do business with all your partners, First Nations included. You know, like I said, I think it’s just smart. It’s a great story that you have, but it’s just smart and good business. In the end, everyone is going to be a winner, here.

Before we let you go, in February as well, formally entering the Alberta recreational cannabis market, supplying retailers throughout the province with an agreement with the Alberta Gaming, Liquor and Cannabis Commission. Tell us a little bit about that before we let you go, and I want to talk quickly about the agreement with Shoppers Drug Mart, because I think that, my friend, that’s where the revolution is.

Andrew Grieve: Okay. AGLC, we entered into an agreement to supply them with recreational cannabis; as I believe I mentioned before, now eight provinces and one territory, we’re very excited to continue to expand our distribution.

Howard Glassman:   Well, when I say about Shoppers, I’ve been harping on this for some time, now, that when people first heard about legalization, it was all titter-titter, giggle-giggle, now we can get weed. And like I said, we could always get weed; what you couldn’t do is extract the benefits, the health benefits from the cannabis. And I said, one day when you can walk into Shoppers Drug Mart – and you’ve proven that – that that model of nutraceuticals or whatever the phrase is, cannabiceuticals – by the way, if you start using that, I want…

Andrew Grieve: Oh, of course, understood.

Howard Glassman:   But I think that, you know, for companies like yours, is really where the big growth is going to be.

Andrew Grieve: Doctor Z, Zeid Mohammedali, who is our Chief Medical Officer, is looking at performing a wide range of studies from a medicinal standpoint: baseline studies in order to establish the impact of cannabis on the brain, a variety of other studies. Some things that are really close to my heart, so PTSD – as someone who is still in the military. Our Chief Administrative Officer spent more than 25 years in the British Army in the regular force; these things really matter.

And so not only can we build a business that delivers value to communities and to employees and to shareholders, but again, we actually have the ability to deliver value to our customers beyond simply the recreational side, but also on the medicinal side – and it’s awesome.

Howard Glassman:   Well, I gotta tell you: what a great example of, if you do the right thing, you know, then good things will follow. Yeah, you know what, in 2021 you hope to finally get paid for your gig, but in the end you’ll get paid more, because people will want to give your company money based on how you run your company.

Andrew Grieve: Absolutely. That’s the bet.

Howard Glassman:   Andrew Grieve, the CEO of Zenabis: TSX-V ZENA. What a pleasure to see you.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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