Zenabis Outperforms Design Capacity by 41% in June

VANCOUVER, July 24, 2019 /CNW/ - Zenabis Global Inc. (TSX:ZENA) ("Zenabis" or the "Company") is pleased to provide an update on its recent cannabis production figures, facility construction and licensing.

Highlights:

• Cultivation output in June 2019 was 756 kg of dried cannabis, which represents a 40.8% outperformance relative to design capacity, or a Performance Ratio¹ of 40.8%;
• June 2019 is the third sequential month where the Performance Ratio has exceeded 30%;
• Cultivation output of 756 kg of dried cannabis was 13.2% greater than forecast output of 668 kg of dried cannabis;
• Construction and licensing continue to progress on track at Zenabis Langley and Zenabis Atholville Phase 2C, with annual cultivation capacity expected to increase to 131,200 kg of dried cannabis in the third quarter of 2019.

Andrew Grieve, Chief Executive Officer of Zenabis, stated, "Zenabis achieved strong cultivation results again in June, despite having an equal number of harvests this month to our forecast number of harvests. We are confident in our ability to continue to outperform as we refine our cultivation approach. As expected, the variety of cultivation approaches we are testing continued to result in significant room-by-room variance during June. In June 2019, we achieved our highest ever Performance Ratio at Zenabis Atholville on a single harvest of 94%. This demonstrates the potential for the facility upon completion of all testing and standardization of cultivation techniques. This harvest exceeded the expectations of the cultivation team, and as a result, additional refinement of techniques is required to work towards replicating this outcome consistently in the future. This harvest also produced 79% bud versus 21% trim, demonstrating that strong outperformance can be achieved by the cultivation and production teams in overall saleable product." 

"Licensing and construction activities continued in line with expectations for this month," continued Mr. Grieve. "The Zenabis Atholville Phase 2B license was received, the Phase 2C – Part 1 license submitted and construction and licensing activities remain on-pace".

^1 To better reflect the actual performance of its facilities going forward, the Company reports a Performance Ratio, calculated as follows: after each harvest, Zenabis will calculate 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 will then divide the Total Output by the Effective Flower Room Equivalent Days in order to produce the "Effective Yield Per Day" for each room, and then divide 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.

Cannabis Production Summary

In June 2019, Zenabis realized a total harvest weight of 756 kg of dried cannabis.

The amount harvested for the three months ending June 30, 2019 exceeded the design capacity of the flower rooms by an average of 35.5%, compared to 27.6% in the three-month period from March 2019 through May 2019.  A month-to-month comparison of actual harvests compared with harvest forecast based on design capacity between January 2019 and June 2019 is provided in the table below.

Historical Harvests – Atholville	Jan 2019	Feb 2019	Mar 2019	Apr 2019	May 2019	June 2019	Total
Actual Harvest Weight	474 kg	480 kg	518 kg	809 kg	908 kg	756 kg	3,945 kg
Design Capacity Harvest Weight^2	372 kg	495 kg	463 kg	616 kg	672 kg	537 kg	3,155 kg
Difference (kg)	102 kg	(15 kg)	55 kg	193 kg	236 kg	219 kg	790 kg
Difference (%) – "Performance Ratio"	27.4%	(3.0%)	11.9%	31.3%	35.1%	40.8%	25.0%

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 (the "Design Capacity Yield Per Day") is based on Zenabis' historical yield data at the Zenabis Atholville facility through September 2018. 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."

In June 2019, Zenabis completed four harvests at Zenabis Atholville and the average Performance Ratio for these harvests was 40.8%. 

2019 Full Year Harvest Forecast – Zenabis Atholville and Zenabis Stellarton

For its existing licensed facilities of Zenabis Atholville and Zenabis Stellarton (and excluding Zenabis Delta), Zenabis expects to produce approximately 11,560⁴ kg of dried cannabis from July through December of 2019. The following table sets out Zenabis' estimated monthly harvests for Zenabis Atholville and Zenabis Stellarton for the remainder of 2019, as well as the forecast provided previously for April, May and June of 2019 compared to the actual amount harvested in April, May and June of 2019.

	April 2019	May 2019	June 2019	July 2019	Aug 2019	Sept 2019	Oct 2019	Nov 2019	Dec 2019	Total
Forecast^3	495 kg	607 kg	668 kg	836 kg	781 kg	1,627 kg	2,263 kg	2,702 kg	3,351 kg	13,330 kg
Actual	809 kg	908 kg	756 kg							2,473 kg

³ This forward-looking estimate of future harvest results is based on the following material assumptions: (1) Both Zenabis Atholville and Zenabis Stellarton operate at their published design capacity on a room by room basis for the cultivation space that is, or is expected to be, licensed and in cultivation at the forward-looking periods noted; (2) Cultivation commencement at Phase 2A, Phase 2B and Phase 2C at Zenabis Atholville in June 2019, July 2019 and August 2019 respectively; and (3) For each of phases 2A, 2B and 2C at Atholville, three days of separation will occur between planting of each room at the point cultivation commences.

Zenabis intends to provide a monthly cultivation forecast for Zenabis Langley upon receipt of the cultivation license at Site A.

The timeline from harvest to the point at which Zenabis completes a sale of that product ranges from a minimum of two 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

Zenabis Atholville (Indoor)

Zenabis Atholville indoor facility is licensed to produce cannabis from 251,600 square feet with licensed annual design cultivation capacity of 22,300 kg of dried cannabis (Phase 1, Phase 2A and Phase 2B). Zenabis is in the process of licensing additional flower rooms and support space to expand cultivation capacity.

The remaining phase, Phase 2C consists of 118,000 square feet. Zenabis has submitted a license amendment to Health Canada to commence production in the first 10 flower rooms of Phase 2C ("Phase 2C – Part 1"), which will expand the facility's licensed annual design cultivation capacity by 9,800 kg of dried cannabis. The remaining four rooms of Phase 2C ("Phase 2C – Part 2) are nearing substantial completion. Zenabis expects to achieve substantial completion at Zenabis Atholville in July 2019.⁴

Zenabis expects to submit a license amendment for Phase 2C – Part 2 in July or August 2019, which will expand the facility's licensed annual cultivation capacity by a further 2,200 kg of dried cannabis. Upon license amendment approval from Health Canada of Phase 2C – Part 1 and Phase 2C – Part 2, Zenabis Atholville will be fully licensed and will be capable of reaching its full annual design capacity of 34,300 kg of dried cannabis.

Zenabis Langley (Greenhouse)

Zenabis is currently converting 10 acres of Zenabis Langley ("Site A"). The construction of the first phase of Site A ("Site A – Part 1") is complete and cultivation is subject to licensing from Health Canada. The second phase of Site A ("Site A – Part 2") is under construction.

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:

Phase	Description
Site A – Part 1	99,000 square feet of operational space, including one 50,000 square foot flower room (the first flower room is expected to have ~50% canopy coverage due to inclusion of table infrastructure that is not included in the other five flower rooms included in Site A – Part 2) Construction complete Site evidence package submitted to Health Canada
Site A – Part 2	380,000 square feet of operational space, including five flower rooms totaling 250,000 square feet, additional growing space of 90,000 square feet, and other operational space of 40,000 square feet Installation of HVAC equipment, flooring and shade screens is ongoing Security equipment and lighting installation is substantially complete

Zenabis Delta

Zenabis is currently in the process of constructing an extraction, post-processing and analytical testing lab at Zenabis Delta. This construction project is expected to be complete by the fourth quarter of 2019.

^4 Zenabis defines substantial completion as the ability to undertake (subject to licensing) all production activities within the design capacity of the facility.

Licensing Update

Zenabis is currently in the process of various licensing activities for Zenabis Langley, Zenabis Delta, Zenabis Atholville, Zenabis Stellarton and the Zen Craft Grow program as outlined in the table below:

License Submission	Submission Month	Annual Design Capacity
Zenabis Atholville Phase 2C – Part 1	June 2019	9,800 kg
Zenabis Delta – Analytical Testing	June 2019	N/A
Zenabis Stellarton – Processing License	July 2019	N/A
Zenabis Langley Site A – Part 1	July 2019	9,900 kg
Zen Craft Grow – Grower 1	July 2019	350 kg
Zenabis Atholville Phase 2C – Part 2	July-August 2019^5	2,200 kg
Zenabis Langley Site A – Part 2	September 2019^6	86,200 kg
^5Expected submission timeline subject to receipt of prior license or license amendment for each facility.
^6 Expected submission timeline of a majority of, or all of, Site A – Part 2

Zenabis is currently utilizing Zenabis Pitt Meadows, Zenabis Aldergrove and Zenabis Langley for the propagation and floral business, as well as hemp cultivation activities. All hemp cultivation at Zenabis Aldergrove that utilizes 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.

Please view the following links for Zenabis operational update and corporate presentation:
https://www.zenabis.com/docs/zenabis-operations.pdf 
https://www.zenabis.com/docs/zenabis-presentation.pdf

About Zenabis

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, Zenabis Delta and Zenabis Langley is fully converted and dedicated to production, 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 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 131,200 kg of dried cannabis by the third quarter of 2019. These facilities, if fully built out and converted for cannabis production, would have an annual design capacity to yield approximately 478,800 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; the timelines projected for our internal post-processing capacities; the timelines projected for the commencement of cultivation at Zenabis Atholville; the anticipated harvesting of industrial hemp; the effect of hemp cultivation on our cannabis cultivation abilities; the expected uses of harvested industrial hemp; our plans for the Zen Craft Grow program; 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. 

SOURCE Zenabis Global Inc.

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