Zenabis Takes on $25m Debt to Complete Expansion

Zenabis Global Inc. [stock_market_widget type="inline" template="generic" color="default" assets="ZENA.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] announced $25 million in additional debt financing this week in a bid to complete the expansion of its facilities.

The company’s cash on hand decreased from $17 million on Dec. 31, 2018, to $8.7 million at Jun. 30, 2019. Its net loss widened from $4 million in Q1 2019 to $18.5 million in Q2 as it invests in building out its facilities.

It should reach production capacity of 143,200 kg on an annualized basis when they are completed, but right now it only had minor amounts to sell. It cultivated 2,473 kg in Q2 and net revenue fell short of expectations after it was forced to reject poor quality cannabis from a third-party.

Zenabis expected net revenue on cannabis sales to reach $10 million to $12 million during the three months to June 30, 2019, but it only achieved $7.25 million.

Total expenses for the quarter were $18.9 million, with salaries and benefits accounting for just over $6 million and professional fees amounting to $3.7 million. Net profit before fair value adjustments was $8.4 million, indicating the company has some way to go before it is profitable.

It is burning cash during its expansion drive, so it has turned to R.C. Morris Capital Management Ltd. for an additional $25 million in senior debt.

It takes Zenabis’ total senior debt load to $50 million. It bears interest at a rate of 14% per annum, calculated and payable monthly. That amounts to $7 million per year, while it has also paid R.C. Morris Capital a 5% structuring fee, which amounts to $2.5 million. RCM also received 902,514 warrants at an exercise price of $1.38.

“These developments ensure we have a surplus of capital to complete the expansion of our facilities to achieve an annual design capacity of 143,200 kg of dried cannabis and become cashflow positive upon completion of our current capital program,” said chief executive Andrew Grieve.

Zenabis has liabilities of $176.3 million, and obligations worth $87.7 million that are due in less than a year.

The $25 million senior debt is due to be repaid on June 30, 2020, which is on top of the $87.7 million in contractual obligations.

But Grieve is confident that it has a surplus of capital to complete its expansion, get capacity up to 143,200 kg and become cashflow positive once the current capital program is complete. It plans to replace senior debt and convertible notes with standard bank financing, and then publish leverage targets to provide for a predictable ongoing capital structure.

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Martin Green
Martin Green is an experienced journalist with a strong focus on the cannabis, alcohol, and gambling industries. He is particularly interested in the political issues affecting the global marijuana trade, and he has a keen focus on regulation changes and legal topics. He holds a BA English Literature, MA Creative Writing and a National Qualification in Journalism diploma. He has worked in journalism since 2009 and written for a broad range of newspapers, business titles and magazines, including The Sun, The Metro, The Journal, Livestrong, Drinks Retailing News, Harpers, Sportsbook Review, Vital Football, Essex Live and Surrey Live. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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