ZENA.T, Zenabis, R.C. Morris, financing, death spiral, shorting

Zenabis (ZENA.T) agrees to financing akin to Devil’s Bargain as funds runs dry

Some believe it easier for a camel to pass through the eye of a needle than it is for a rich man to enter heaven, though this must be little consolation to Zenabis (ZENA.T), the poor saps whose financing with R.C. Morris Capital management might have amounted to usury in years past.

With mounting expenses, the company’s management decided to take on an additional $25 million in debt–$50 million in total–through yet another financing.

Ah, what a time to be a lender! Not so long ago it was enough to simply proclaim oneself a cultivator to be showered in capital. But, as the saying goes, it’s preferable to be the wine maker rather than the grape farmer and this is a trend we are now seeing in cannabis.

“The New Senior Debt will bear interest at a rate of 14% per annum, calculated and payable monthly. The Senior Debt will have a maturity date of June 30, 2020,” said the company via telegram.

The interest payments owed to R.C. Morris by Zenabis will amount to $7 million each year and the initial structuring fee equal to five percent of the new senior debt equals an additional $5 million paid to the financier.

Warrants have also been allotted to R.C. Morris, enough to acquire 902,514 company shares, though these will likely expire in August 2022 since the strike price is $1.38 and Zenabis currently trading at nearly 50 cents.

Zenabis also has a number of debentures to consider. The company also announced interest rates on the convertible debenture notes have had their conversion price reduced from $2.52 to $1.54 and the interest rates have inversely increased to 11% from 6% in addition to extending their maturity date to June 30, 2020 from October 2019.

What to make of this? Simply put, the company is finding great difficulty in meeting its obligations and is forced to take on more debt in the hopes of their fortunes changing in the near future.

With $8.6 million in cash assets in June of this year, and with a loss of $18.4 million during the quarter, the company has little leverage to negotiate with the bruisers over at R.C. Morris.

ZENA.T, Zenabis, R.C. Morris, financing, death spiral, shorting
Source: rcmorris.com

A 14% interest rate is steep as we’ve seen in the markets, but with money drying up Zenabis has no choice but to accept the terms!

And with the company’s stock unlikely to reach $2.52, the debentures have been renegotiated to a lower conversion price to avoid Zenabis returning the money, something they cannot afford at the moment. To buy themselves some more time, the bargain they’ve struck means interest rates have nearly doubled.

R.C. Morris, Gotham Green Partners and MMCap are just a few of the prominent lenders in the cannabis space. Doubtless, you have become familiar with them by now.

It’s a devilish strategy, but an effective one if the name of the game is amassing capital, and it is, dear reader.

These firms loan cannabis companies like Zenabis money and usually receive convertible debentures in return, shorting the company all the while.

If the company’s stock crosses the exercise price, then bully for them. R.C. Morris then has their money back and more. If not, the loan is returned with interest, and the interest rates are likely to increase as the stock continues its downward slide, as in this case.

There’s hardly a downside for these firms. Some deals, as we’ve seen, allow the lender to take ownership of the borrower’s property should they fail to repay the loan.

If only there was a way to invest in R.C. Morris!


–Mr. Millionaire

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