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Zenabis Global Inc (TSE:ZENA) Closes Non-Dilutive Financing With Tilray, Inc (NASDAQ:TLRY)

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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 (TSX:ZENA) CEO Andrew Grieve gives James the intel on a recent transaction conducted through High Park, a wholly-owned subsidiary of  Tilray Inc (NASDAQ:TLRY). In the terms of agreement, Zenabis will provide High Park with a monthly supply of dried cannabis, in addition to the other customers they anticipate serving. Completion of their Atholville facility along with funding to complete 130 tonnes at Langley positions them for expanding capacity to meet demand.

Transcript:

James West: I’m joined now by Andrew Grieve, CEO of Zenabis Global, trading on the TSX under the symbol ZENA. Andrew, welcome back.

Andrew Grieve: Thank you for having me.

James West: You bet. Andrew, point of interest in the market is your $30 million non-dilutive financing by a Tilray subsidiary, High Park. Curious to understand, how did that come about?

Andrew Grieve: That came about because we had an existing relationship with Tilray where we were selling them product, and we went to them and asked if they would be interested in purchasing significantly more product on a prepaid basis. They completed site tours of our facilities to confirm that they were confident we could deliver that supply, and upon completing those site tours, they came back and they said yes. And we got a deal done very quickly.

James West: Wow, that was quick. What specifically, in your opinion, was it about Zenabis’s operation that attracted Tilray to you guys as a partner as opposed to the vast array of companies out there they could have chosen from?

Andrew Grieve: They already had confidence in our ability to supply quality product, because they had purchased product from us in the past. And then in addition, they went to our Atholville facility, they saw that we were essentially complete from a construction standpoint. They knew that, from a licensing standpoint, we’d already achieved the vast majority of our licensing objectives there in Atholville. They knew what we’d submitted from a licensing standpoint; they knew that that volume was more than sufficient to cover the obligations that we agreed to from a supply standpoint. And then on top of that, they visited our Langley facility and saw that we were near substantial completion on that facility, saw that we were ready to submit from a site evidence package standpoint, and were very confident in what we put forward in terms of what we would be able to produce from that facility.

James West: Sure. Interesting. How much cannabis is $30 million worth on a prepaid basis?

Andrew Grieve: So it isn’t actually covered in the release that we put out, and the reason why is because they can choose from a few different formats that we could provide them product in. It’s a meaningful amount of cannabis in terms of the amount that is available for purchase, but it’s not all that significant relative to our 2020 total capacity. So our 2020 production capacity is going to be at least 130 tonnes, based on what we’re nearly finished building out, and so this is not a very meaningful commitment relative to the available supply that we have for 2020.

James West: Sure. So presumably, Tilray would be incentivized to undertake this, because you’re offering them a discount to the market price of cannabis, and not being in the press release, I don’t expect you to tell me what that formula is. But is this – and it doesn’t represent a major portion of your total production, which is great to hear. So my question for you is, does the discount that you gave to Tilray, is that something that’s going to be determined as a fixed number over the life of the supply agreement? Or is it something that is fluctuating relative to the given cost of cannabis at any given moment where they take delivery?

Andrew Grieve: No, it’s a fixed price agreement.

James West: It’s a fixed price agreement. Okay, so then that, presumably, means that – puts a floor price on your cannabis sale prices on a wholesale basis going forward, which is an admirable position to be in.

Andrew Grieve: I think that you should expect that there will be other companies that are looking to us to provide wholesale cannabis going forward. We have a management team that in the past, on the VIVO side, provided contract cultivation services, and continues to provide contract cultivation services over a wide variety of products. And our intent is to continue to provide contract cultivation services not only a propagation and floral side of the business, but also on the cannabis side of the business, and we’re always interested in engaging with partners who want a fantastic contract cultivation team to work for them and work with them, in order to supply product.

James West: Sure. So you’re now coming up on 660,000 square feet of total cultivatable area, and is it your intention to, and then you’ve got, as well, 2.5 million square feet of greenhouse, as well. Do you anticipate having all of that in production at maximum capacity in 2020?

Andrew Grieve: From a production standpoint, we have the funding to complete the 130 tonnes at the moment, which is the first 10 acres at Langley as well as the completion of our Atholville facility. Our perspective is that there will be additional customers who will come to us over the course of the next six months and will want us to continue to expand that capacity, and we’ll be ready to expand that capacity in order to meet demand, either from provincial counter-parties or from wholesale counter parties who want us to produce for them on a contract cultivation basis.

James West: Sure. Okay, well, that’s an incredible achievement, I would say, just as an objective basis. What else have you got going on at Zenabis? I’m just curious, because it’s been a while since we’ve talked, and while you’ve pulled this amazing thing off, it makes me want to hear what else you have planned.

Andrew Grieve: We have a lot of other things planned, and I think we’ve communicated that we intend to have a full suite of products upon legalization of edible and beverage products. We are also working on a variety of other partnerships and transactions; we’re always working pretty hard in order to get things done. I think that you can also see some interesting updates in our latest monthly update, so we noted that in May, we outperformed relative to our design capacity on a cultivation basis between 10 and 60 percent per harvest.

So versus the actual design capacity for Atholville that we published, we’re actually producing significantly more cannabis than the amounts we indicated. Then on top of that, we started planting hemp at our other sites that previously were just used for floral and propagation, and as a result, we’ll have a significant amount of hemp that we’ll be harvesting starting in September, as well, which where we’re actually utilizing down time in our floral and propagation business in order to ensure that we have crops in those facilities and using the land there continuously. 

So that’s just a few of the things that we’ve been up to recently, and you’ll see a lot more from us over the next month, and over the next couple of months.

James West: Sure. Are you currently selling any of your branded products in retail environments across the country anywhere?

Andrew Grieve: Yeah, so we are currently in eight provinces and one territory. So we have distribution arrangements with British Columbia, Alberta, Manitoba, with retailers in Saskatchewan, with Quebec, with PEI, with New Brunswick and Nova Scotia, and then with the Yukon. And we will be listed with Shoppers shortly as well, and we of course are working hard to ensure that we’re in the final two provinces, because we want to be a true national supplier of cannabis.

James West: And what about for your international ambitions?

Andrew Grieve: From an international standpoint, we have signed agreements and LOIs for distribution into Europe, Central America and South America, and we’re working hard to ensure that we can be shipping cannabis from our facilities in Canada to Europe in the fourth quarter, and getting sales out the door into Europe quite quickly from a medical cannabis standpoint.

James West: Wow. So Europe has opened the door to imports of Canadian cannabis on a recreational basis, medical basis, or both?

Andrew Grieve: Medical basis.

James West: Just a medical basis, okay. So is your output EU GMP-certified?

Andrew Grieve: By the fourth quarter, we will have output that legally will be able to go to the EU through an EU GMP certification process.

James West: Okay, so that implies that your greenhouse and your indoor cultivation facilities observe good agricultural practices, according to the EU standards, as well?

Andrew Grieve: Well, I can say that our greenhouse facility does so at the moment, because that facility hasn’t commenced production.

James West: Okay.

Andrew Grieve: So I wouldn’t say that my statement implies that, but I would say that my statement implies that in the fourth quarter of 2019 we’ll be shipping cannabis to Europe from at least one of our facilities in Canada.

James West: Okay, that’s reassuring to hear, because many people say ‘We’re going to export to Europe’ and I ask them about EU GMP, they say, Oh, you don’t need to worry about that. In which case I think, okay, maybe yes, maybe no. So, refreshing to hear. Okay, well, you’re doing a great job, Andrew. Tell me, what is the big milestone out there on the horizon that investors should look to, to demonstrate that you are in fact achieving your goal of becoming an international branded producer?

Andrew Grieve: I think from an international standpoint, shipments to Europe is a meaningful component of that, so that’s a significant milestone that will really demonstrate our capacity to be an international player.

James West: Okay. Andrew, that’s a great update. We’re going to leave it there for now and come back to you in due course. Thanks very much for joining me today.

Andrew Grieve: Thank you so much. Have a great day.

James West: You too. Bye-bye.

 

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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