Zenabis Global Evidently Facing Over Supply Conditions

Zenabis Global (TSX: ZENA) issued its September production figures today, identifying that the firm continues to exceed design specifications at its facilities across the country. Included within the extensive release however, is text that suggests the firm is already beginning to face oversupply problems within its sales channels.

While Zenabis is currently in the process of gearing up its cultivation activities, it seems that its current cannabis output is already more than the market can currently bare. During the month of September, the firm harvested 2,089 kilograms of cannabis, which was an increase from August’s figure of 1,996 kilograms. Despite this, Zenabis only packaged 1,382 kilograms of product for sale between both its wholesale and retail channels. The issuer shipped even less, with only 652 kilograms of dried cannabis and 174 litres of oil products leaving its facilities.

Nevertheless, the cultivator is plowing full steam ahead with increased capacity at its facilities, with the firm submitting an amendment on September 27 to Health Canada to increase its capacity from 39,400 kg to 96,400 kg of annual cannabis production. The amendment is for its Langley facility, which recently completed its Part 2A construction stage. Part 2B is expected to be submitted just next month, which will add an additional 14,800 kg of capacity to the issuer. Meanwhile, construction overages have lead to the delay of Part 2C at the facility, which now will not be completed until February 2020.

Despite the small shipments from its facilities to customers, Zenabis has remained firm in its ability to sell product, stating, “Currently, indicative demand from provincial counterparties exceeds forecast supply of both packaged flower and packaged pre-rolls for October 2019 through January of 2020 without further reductions in price. Indicative demand does not necessarily translate into actual demand.”

The issuer also laid blame for its low sales for the month on troubles related to operating new packaging equipment, which is expected to process 30,000 containers a day. Actual output came in reportedly at 6,276 containers per day, resulting in the firm only packaging 517 kg worth of product throughout the month. Yet, Zenabis did not ship all product that was packed during the month – highlighting a common concern among investors that the sector is in fact facing an over supply of cannabis.

Zenabis Global closed Monday’s trading session at a price of $0.57 on the TSX, down 16.18%.


Information for this briefing was found via Sedar and Zenabis Global. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Jay

As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive's stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.

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