Shares of Zenabis Global Inc. (TSX-V: ZENA) have been on a steady down trend since January 2019. The stock traded as high as $6.85 per share, and at time of writing, shares are trading at $2.00 equalling a market cap of $365 Million. Are ZENA shares dramatically undervalued? Could they see a tremendous recovery in 2019? We think so and here’s why!
Looking through the investors deck for Zenabis, there is quite a bit of bullish information for people to consider. Example, on page 7 of the investor deck, we can see that for the indoor production and outdoor production space, Zenabis Global ranks as the third largest production in capacity. Right behind the behemoths Aurora Cannabis (TSX: ACB) and Canopy Growth Corp. (TSX: WEED). Based on the available production space alone, it easy to speculate future upside for shareholders of ZENA.
Page 5 of the deck is VERY interesting as it foreshadows the coming catalysts. Starting with the earliest catalyst, we can see that in the month of May, the Company intends to expand its Athoville facility an additional 9,800kg, bringing their total production capacity to 23,200kg of cannabis. When announced in May this will certainly be an event that will further increase the Company’s intrinsic value proposition and should further increase the company’s share price as a consequence.
Moreover, Zenabis intends to expand its Atholville facility to include an additional 12,000kg for its indoor operation and a portion of its greenhouse facility located in Langley, British Columbia is also expected to be operational in June. The total capacity in the for June 2019 for a staggering 83,250kg! Furthermore, Zenabis Global will later complete the additional greenhouse space and expand its capacity by 48,050 kg, bringing the total capacity in August 2019 to a total of 131,300kg! This is a huge capacity... monster capacity… world class capacity!
Further strengthening the value proposition for Zenabis Global is the fact that the CEO will not receive any cash compensation unless the company accomplishes the following;
- Achieves $96 Million in EBITDA ($0.42 per share) and $36 Million in earnings ($0.16 per share) in 2020
- Maintains a share price greater than $4.90 over four quarters.
Based on maintaining a share price of $4.90 or over, represents an increase of 177% from the current average share price of $1.80. Given the upcoming operational milestones, we think this is achievable.
We have always been bullish companies who have a relatively large insider ownership. This demonstrates that the company’s management teams' interests are aligned with shareholders. We have written about insider ownership in our previous article titled “When Skin In The Game Matters”.
The image below was sourced from page 19 of the investors deck. In this ownership breakdown we can see that the Founders own 30.7% of shares and Insiders own 27.3% for a combined total of 58% ownership. This is really a positive seeing founders and insiders own more than half of the shares outstanding. Zenabis Global might have the highest insider ownership out of any licensed producer in Canada. Such a high insider ownership is not a common theme, but is something we strongly believe is important factor for investors to consider when investing in a company.
On April 22nd Zenabis Global announced that the company received conditional approval to graduate its listing from the TSX Venture (TSX-V) to the Toronto Stock Exchange (TSX). Graduating to the TSX big board is definitely a great way to attract much larger and serious investors. This up list process can take 4 to 6 weeks and we anticipate this up listing to the Toronto Stock Exchange should drive more broad-based participation on the stock once completed. If timed correctly with the company’s planned expansion in May, this could be a double whammy and sets up the company to fill the gap to the upside. As we discuss the graduation from the Venture exchange to the Toronto Stock Exchange, there is another market worth looking at, the OTC. Zenabis Global currently trades on the PinkSheet under ticker symbol (ZBISF). The PinkSheets is undoubtedly not the most attractive place to be for any serious company since requirements are very low which doesn’t serve as very good optics for such a well-run company with so much potential. This is why we believe that Zenabis will stay on the Pinksheet a little longer as the company could skip the $25,000 USD fee for listing its shares on the OTCQB and further expenses for DTC Eligibility, and directly list its shares on the NASDAQ. This is a process that does require time as the company does have to meet certain criterion, but is nonetheless a move the company can make in the near future and is definitely something investors should pay attention to. Uplisting its shares from the Pinksheet directly to the NASDAQ would most certainly attract a lot more buyers in the United States! We are following developments of this story closely and look forward to the companies progress as they accomplish many milestones as stated in this article!
Forward Looking Statements: This article may contain "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of the content is published on this website. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify these forward- looking statements. Information in this article has been furnished for your information only, is accurate at the time of posting, and may be superseded by more current information. Except as required by law, we do not undertake any obligation to update the information, whether as a result of new information, future events or otherwise. This article should not be considered as personal financial advice. Full Disclosure: The company Zenabis Global Inc. is not a paid client of Equity Insight. Directors of Equity Insight may buy, hold or sell the securities before during or after this publication.