Zenabis Provides Cannabis 2.0 Product and Strategy Update

Highlights:

• In December 2019, Zenabis signed a definitive agreement (the "Agreement") with HYTN Beverages Inc. ("HYTN") to produce a range of cannabis-infused beverages at Zenabis Stellarton.
   
• The initial launch of cannabis-infused sparkling water beverages under the HYTN brand are listed with all Zenabis' Provincial counterparties, with strong indicative demand. First shipment of the initial four flavours of the cannabis-infused sparkling water beverages expected in Q2 2020.
   
• Zenabis executed its first production run of vape cartridges for the PAX Labs Inc. ("PAX") Era vaporizer device range. The initial run was immediately sold to three provincial partners. The first provincial shipments commenced on 5 February, 2020.
   
• Zenabis Atholville's extraction lab is currently operating at 400 kg of biomass per month, and is expected to reach steady state in March 2020. The intent is to use cannabis extracts from Zenabis Atholville in Zenabis' cannabis derivative products once extraction reaches steady state.

HYTN is in the process of installing its own beverage production line in Zenabis Stellarton, with commission expected to be completed by March 2020. Zenabis will supply the requisite cannabis extracts and provide coast to coast distribution with the company's provincial counterparties. The intent is to launch a series of cannabis-infused sparkling water beverages under the HYTN brand with future beverage products planned to the extent that is justified by market conditions and demand.

"We are happy to announce a new addition to the Canadian cannabis 2.0 market. We are working with a partner that has experience successfully formulating new beverage options in the Canadian market. The combination of HYTN's beverage manufacturing expertise with our high-quality cannabis extracts allows Zenabis to provide consumers with a new line of high-quality cannabis-infused beverages," commented Kevin Coft, Chief Executive Officer of Zenabis. "Initial indicative demand from our provincial partners is strong and we hope to have these products into their supply chains in Q2 2020. This will make Zenabis one of the first licensed producers to bring cannabis-infused beverages to the Canadian market."

As a further update to the Zenabis Cannabis 2.0 strategy, Zenabis recently shipped its first shipment of PAX Era Pods to provincial counterparties, as part of the supply agreement signed in 2019 with PAX. Zenabis is one of 5 licensed producers producing vape cartridges in the form of PAX Era Pods for the PAX Era vaporizer device range.

"We believe vaporizers are the centrepiece product line in this first phase of Cannabis 2.0," continued Mr. Coft. "That is why we are pleased to have immediately sold out our initial production run. The Namaste-branded Citrique, Ultra Sour and D.Bubba PAX Era Pods have already left our state-of-the-art facility in Atholville, and are in-market across Canada. With our Atholville extraction lab up and running, we are gearing up for more orders and production."

"We believe our partnership-driven approach to the initial phase of Cannabis 2.0 product development, as evidenced by the relationships with PAX and HYTN, is both prudent and scalable. We are able to take advantage of industry-leading expertise, respond to market sentiment quickly, and get to market with capital-light investment," concluded Mr. Coft.

Product Update

Zenabis is currently ramping up its extraction capacity at Zenabis Atholville with current extraction capacity of approximately 400 kg of biomass ("Inputs") per month. At full design capacity, Zenabis expects Zenabis Atholville to have an extraction design capacity of 15,000 kg1 annually. Zenabis intends to utilize biomass which may include trim, dried flower, and hemp produced at Zenabis' three cannabis-focused facilities in order to supply sufficient cannabis extracts for its cannabis derivative products. Additionally, Zenabis, after meeting its existing contractual obligations, may utilize any excess extraction capacity for third party extraction purposes.