Despite a recent setback in perception ZEN Graphene Solutions Ltd. (TSXV: ZEN) continues to power ahead with the stock up an impressive 30% in the last two weeks. Readers may recall a Health Canada announcement on April 2nd announcing a warning about face masks containing graphene or biomass graphene. This was a perfect springboard for ZEN Graphene to differentiate themselves from the competition and prove the superiority of their product. Health Canada warned, “There is a potential that wearers could inhale graphene particles from some masks, which may pose health risks.” Not surprisingly, ZEN’s stock price gapped down in trading that day on above average volume as investors threw the proverbial baby out with the bath water.
Investors (with a reasonable level of risk tolerance) who’ve done their homework on ZEN Graphene would have recognized this as a buying opportunity. Why? Not all graphene face masks are created equal. ZEN actually came out in support of the Health Canada measure, stating it is aligned and supportive of the steps taken to regulate the use of graphene and remove products that are unsafe for the public. Their confidence is based on the fact that Nucro-Technics (a world-renowned testing facility) has performed extensive testing for cytotoxicity, irritation and skin sensitization and shown that ZEN’s product is safe. As well, the company’s partner in the face masks, Trebor Rx Corp., has also completed considerable testing on the masks and has successfully passed Canadian requirements as a level 1 Medical Device for ASTM Level 1, 2 and recently, level 3, the highest level for surgical masks. Finally, additional information requested by Health Canada following the April 2 advisory has been submitted by ZEN and Trebor and it is expected the current review will be concluded in an expedited manner.
During this whole process, the company was still able to complete an oversubscribed private placement that started at $2 million and ultimately raised $4.3 million. It would appear at least some investors aren’t overly concerned about the Health Canada warning. So if readers are now reasonably confident that the Health Canada warning is in the rear view mirror and unlikely to negatively impact ZEN Graphene, then why would you as an investor want to dig deeper into being a ZEN Graphene shareholder?
Results and upside of course. On March 29th InvestorIntel’s Matthew Bohlsen wrote about the successful testing of ZEN’s graphene compound against antimicrobial-resistant bacteria (including SARS-CoV-2) as well as the above noted cytotoxicity tests and Health Canada mask approval. He also addressed ZEN’s plans to expand current capacity to supply the demand from Trebor Rx from 4 million coated disposable masks per month to 32 million per month by June and further to 800 million masks per month by November. That is actual demand today that the company has realistic plans to achieve. If that isn’t upside enough, then all you have to do is look at the product pipeline which includes exam and single-use gloves, as well as the air filtration market.
I can bombard you with plenty of large numbers here that paint a picture of incredible upside but I’ll simply highlight a few key points and let you do your own homework. First off, all the products in the current pipeline are disposable, mostly single use. Second, Covid-19 has brought attention to the whole PPE market but for the products ZEN Graphene is looking to provide, demand won’t go away once the virus has been brought under control (whatever that looks like). Lastly, the large numbers are very large for global PPE like masks and gloves.
However, the proof is ultimately in the bottom line. The company has set out a plan to start generating revenue (of which it had none as at Dec 31, 2020) and reasonable, timely growth plans. They currently have over $5 million of cash and current burn rate of roughly $2 million per quarter depending on the incremental costs to build out mask production capacity. It’s hard to compete with the support and confidence shown by the team at ZEN Graphene during the Health Canada issues. If their product is really that good it should start to show up on the bottom line sooner than later.