The cannabis market is expanding so fast that keeping up with all of the different companies jumping into the business and going public is near impossible. At the same time, some of the developments under the radar of the general market provide opportunities for investors willing to take on risk.
One suddenly interesting play in the Canadian cannabis sector is Zenabis Global (ZBISF) that was formed via a RTO merger in January. The company is a potential hidden giant in the making.
Zenabis Global definitely talks a big game. The licensed cultivator of medical and recreational cannabis was formed in January via the combination of Bevo Agro, Inc. and Sun Pharm Investments Ltd.
The combination provided a propagation business with greenhouses in North America with a large privately held cannabis producer that operates four facilities intended for cannabis cultivation. Zenabis has a stated plan to reach cannabis production capacity of 131,300 kg in Q3 with a total design capacity of 479,300 kg.
The company has very lofty goals for a cannabis player that has yet to top 1,000 kg in monthly cultivation. New CEO Andrew Grieve shared the following corporate objectives along with the conditional approval of “ZENA” joining the Toronto Stock Exchange:
- Becoming one of the largest licensed producers of medical and adult-use cannabis in Canada and securing competitive positions in a number of international markets.
- Achieving industrial scale cultivation of top-quality cannabis at a low cost.
- Rolling out a large offering of ultra premium, premium and value cannabis products to the market through our significant distribution networks.
The interesting part is that the stock only has a market cap of $250 million despite all of the large-scale plans in the Canadian cannabis sector. The Sun Pharm portion of the business generated Q4 revenues of C$3.8 million primarily from the medical and recreational cannabis market in Canada while the main Bevo greenhouse is being converted to grow cannabis.
Another interesting part is that Zenabis under the new leadership of Andrew Grieve has taken on the stance of providing transparent details on monthly cultivation numbers and plans. The existing licensed Zenabis facilities have the following cultivation targets:
Source: Zenabis press release
The biggest news for the stock could be the impending uplisting to the TSE. The company announced conditional approval on April 22. Such a move could lead to a listing on a major exchange in the U.S. similar to the big Canadian LPs that obtained outsized market valuations.
The company might be better off pursuing business in the U.S. cannabis market, but a move to the TSE will provide substantially more liquidity for the stock and hence a much higher valuation in the short term. The major exchanges don’t allow for listings of companies with a business that is illegal on a federal level such as cannabis in the U.S.
The stock is already down substantially from the highs following the news of the RTO merger. The next key catalyst along with the TSE uplisting that would provide major credibility to the new cannabis firm is Q1 earnings on May 30. The report will provide the first financials of the new company along with analyst access to the CEO and new CFO.
The key investor takeaway is that Zenabis Global has an incredible plan to turn the greenhouse and growing expertise of Bevo Agro along with the cannabis licenses of Sun Pharm to build a cannabis industry leader.
The market hasn’t taken notice of the stock yet. The current valuation near $250 million is not reflective of the potential growth of the company with one of the largest cannabis cultivation plans.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has no positions in Zenabis Global stock.