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Zenabis Earns New Cultivation License, Ramps Up for Second Wave of Canadian Legalization

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Health Canada awarded Canadian cannabis producer Zenabis the first cultivation license for what will be its largest cannabis production facility to-date, the company announced on Tuesday. The win comes as the company moves to ramp up its cultivation potential and prepare for Canada's second wave of cannabis legalization.
The newly-licensed portion of Zenabis' 2.1 million square foot greenhouse facility in Langley, British Columbia, will boost the company's annual cultivation capacity by about 21,800 pounds (9,900 kg) to start, increasing Zenabis' total annualized cultivation by about 30 percent to 105,800 pounds (48,000 kg) of dried cannabis. Part of the Langley facility is still under construction, but is expected to be licensed and running by October.
This new license means all four of Zenabis' facilities are now licensed and operational.
Zenabis has the lofty goal of becoming one of the largest cannabis cultivators in Canada and globally. CEO Andrew Grieve said this latest achievement puts the company well on its way.
"The pace of our ramp up has been pretty exceptional," said Grieve. "We've grown by 10-fold in seven months and we are going to grow another three-fold or so within the next few months, which I think is a pretty exceptional pace."
Aside from boosting cultivation capacity ー and Zenabis' position in the ranks of Canadian cannabis producers ー all that production capacity provides Zenabis with an alternative source of financing: wholesaling.
In early July, Zenabis announced that it inked a deal with cannabis giant Tilray ($TLRY) to supply about $22.6 million worth of dried cannabis. The deal addressed Tilray's troubles sourcing wholesale cannabis from fellow producers and also reduced Zenabis' reliance on other forms of financing, like debt.
"What people believed in the market is that there were limited ways to finance your business and that was through equity capital markets, through some kind of convertible equity market, through some kind of senior debt, or that was pretty much it," Grieve said. "No one had seen a prepaid supply deal of this size ... It's really evidence of the fact that we have credibility as a cultivation team."
It also struck a similar agreement, worth about $7.5 million, with Starseed Medicinal in late July.
Although Zenabis may not always need financing in the form of prepaid cannabis supply in the future, Grieve said he could see wholesale sales becoming an ongoing alternative revenue source for the company as the cultivation sector gets narrower and more competitive.
"There will be a lot of people with brands who may not be able to compete with the most effective, cost-efficient producers. And as a result I expect that in the future people will still come to us for wholesale purchases and contract cultivation on an ongoing basis," he said.
Of Zenabis' four facilities, perhaps the most unique is the facility in Stellarton, Nova Scotia. Only about a third of the 255,000 square foot facility is in use ー and that's no oversight. Zenabis is currently in search of tenants to fill the space.
The company intends to provide entrepreneurs and businesses with raw material (cannabis) and manufacturing facilities so they can turn Zenabis cannabis into exciting products, like oils, vapes, edibles, and beverages. Grieves wouldn't share too much about the undertaking, except to say it is all part of the company's plan to ramp up for when Canada legalizes alternative cannabis products, including vapes and beverages, come October.
"We are going to have a combination of our own products as well as products from our partners and we'd rather diversify our approach and work with more people than just come up with our own concepts," he said.
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