Zenabis Announces First Quarter 2021 Financial Results


VANCOUVER, BC, May 14, 2021 /CNW/ – Zenabis Global Inc. (TSX: ZENA) (“Zenabis” or the “Company“) today announced its financial results for the quarter ended March 31, 2021. All amounts, unless specified otherwise, are expressed in Canadian dollars.

First Quarter 2021 Highlighted Financial Results

  • Quantity of cannabis sold totaled 4,753 kg in Q1 2021, which was 27% greater compared to 3,730 kg in Q1 2020;
  • Consolidated gross revenue totaled $16.2 million in Q1 2021, 8% higher than $15.0 million in q1 2020;
  • Gross margin before fair value changes to biological assets and inventories was $2.7 million or 21.5% of net revenue in Q1 2021, compared to $5.0 million or 39.7% of net revenue in Q1 of the prior year;
  • Consolidated Adjusted EBITDA for the quarter totaled a loss of $1.9 million, compared to loss of $768 thousand in Q1 2020;
  • Consolidated net income for the quarter totaled $9.1 million or $0.01 per share, fully diluted, compared to a loss of $7.8 million or $0.02 per share, fully diluted, in the same quarter of last year;

Shai Altman, Chief Executive Officer of Zenabis stated, “Zenabis continued to make substantial progress in the quarter with respect to improving its financial position.  In the first quarter of the year, the Company reached a settlement in respect of a disputed prepaid supply agreement for materially less than its carrying value, arranged a $60 million committed credit facility to enable it to repay its Senior Notes, the dispute with the Senior Lender over repayment terms notwithstanding, and closed the Bevo divestiture including the Company’s release from its guarantee of Bevo’s debt.  As a result of these initiatives, the Company posted its first ever quarterly net income and positive earnings per share.  Significant operational developments included ZenPharm, the Company’s EU joint venture, obtaining its EU GMP certification in February and its license from the Malta Medicines Authority in mid-May.  As well, as the Company substantially increasing the amount of cannabis sold compared to the same quarter of 2020. 

We are also pleased that the Company’s shareholders overwhelming approved the proposed merger with HEXO (TSX: HEXO; NYSE: HEXO)  at yesterday’s shareholders’ meeting.  We are pleased to be joining the Hexo team and are confident that the combined company will be accretive to all of the Company’s stakeholders.”

On December 31, 2020, Zenabis entered into a rental rebate, liability contribution and share purchase agreement to sell the Company’s wholly-owned subsidiary, Bevo Farms Ltd. and its subsidiaries (“Bevo”).  This transaction resulted in Zenabis deconsolidating Bevo as of December 31, 2020 and accordingly, classifying Bevo as a discontinued operation.  As a result, comparative periods have been re-presented to show discontinued operations separately from continuing operations.  Bevo was formerly the sole element of the Company’s Propagation reporting segment.

Key First Quarter 2021 Developments

  • In February 2021 the Company announced that its ZenPharm facility had received EU GMP certification. With ZenPharm having received EU GMP certification together with the most recent receipt of final licensing from the Malta Medicines Authority, Zenabis expects to commence recurring commercial exports to the European Union during Q2 2021 with the first shipment to be completed in May 2021.
  • In February 2021, the Company announced that it entered into a definitive arrangement agreement (the “Arrangement Agreement”) under which Hexo Corp. (“Hexo”) will acquire all of Zenabis’ issued and outstanding common shares in an all-share transaction. Under the terms of the Arrangement Agreement, Zenabis shareholders will receive 0.01772 of a Hexo common share in exchange for each Zenabis common share held (the “Exchange Ratio”). Warrants and incentive securities of Zenabis will be adjusted to ultimately become exercisable to receive common shares of Hexo based on the Exchange Ratio. At the special meeting of the shareholders of Zenabis held on May 13, 2021, the shareholders approved the Arrangement Agreement with Hexo.
  • In February 2021, the Company entered into a settlement agreement and release with a customer (the “Settlement Agreement”) pursuant to which the parties have agreed to withdraw from arbitration proceedings and release each other from all past, present and future claims arising out of the pre-paid supply agreement. Pursuant to the Settlement Agreement, the Company paid $12,500,000 to settle the customer deposit balance of $25,428,780.
  • In March 2021, the Company closed the previously announced sale of Bevo Farms dated December 31,2020. Upon closing, Zenabis received approximately $8.79 million in cash proceeds. Following the closing of the sale of Bevo Farms, Zenabis has been unconditionally released from its prior guarantee of Bevo Farms’ obligations to the Bank of Montreal (“BMO”) under Bevo Farms’ credit facility with BMO.
  • In January 2021, the Company announced that it had secured a committed $60,000,000 revolving credit facility from a Canadian private debt fund in order to refinance the Senior Notes Payable and provide additional capital into the Company. The revolving credit facility would bear interest at the greater of 10% or the Toronto-Dominion Bank’s prime rate plus 7.55% compared to the current Senior Notes Payable which bear interest at 14% plus other fees. To date, the Company has not drawn on this facility to repay the Senior Debt lenders. In February 2021, the Company filed a petition with the Supreme Court of British Columbia for a determination of the amount required to repay and terminate the Senior Notes Payable, including the Amended Royalty amount in order to draw on the revolving credit facility and repay the Senior Notes Payable.
  • In February 2021, the Company issued an unsecured convertible debenture to a third party for gross proceeds of $19,500,000, bearing interest at 8% per annum and scheduled to mature in February 2023. The debenture holder also has the option to convert the principal and accumulated interest to shares at a price equal to the 5-day volume weighted average price.
  • In February 2021, the Company established an at-the-market equity (“ATM”) program allowing the Company to issue up to $15,000,000 worth of common shares to the public. As of the date of filing, the Company has concluded the ATM program.
  • In March 2021, Zenabis announced the launch of new 10 and 20 pack configurations of pre-roll multipacks for its Re-up brand in both indica and sativa formats.
  • During the quarter, the Company introduced three new high-THC strains to market and continued development of four additional new strains which are expected to be commercialized in the second quarter of the year.

Selected Financial Data

Condensed Consolidated Interim Statements of Net Income (Loss)

Three months ended

Q1 | 2021


Q1 | 2020


Q1 | 2019

Financial Results






Gross revenue

$

16,178,869


$

15,048,030


$

5,077,104

Net revenue (i)

12,418,793


12,601,116


4,350,828

Gross margin before fair value adjustments

2,669,937


5,006,028


2,288,083

Operating expenses

10,370,486


7,993,318


17,300,601

Operating (loss) income

(4,823,474)


192,685


(12,365,720)

Other income (expenses)

13,994,643


(11,571,369)


6,386,482

Net income (loss) from continuing operations

9,133,819


(9,414,910)


(4,958,616)

Adjusted EBITDA loss from continuing operations (ii)

(1,852,841)


(767,915)


(7,862,300)

Income (loss) from continuing operations per share, basic

0.01


(0.03)


(0.03)

Income (loss) from continuing operations per share, diluted

$

0.01


$

(0.03)


$

(0.03)

(i)   

Net revenue represents our total gross revenue exclusive of excise taxes levied by the Canada Revenue Agency (“CRA”) on the sale of medical and recreational cannabis products effective October 17, 2018.

(ii) 

Refer to the “Non-GAAP Financial Measures” section for…



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