CanadaCannabis 2.0EarningsStock NewsOrganigram shares soar on first-quarter sales boost

Company says its quality cannabis 2.0 products will keep its revenues growing in future quarters
Jared Gnam Jared GnamJanuary 15, 20209 min

Organigram‘s (TSX: OGI) stock had its biggest single day gain ever after the producer said its first-quarter cannabis sales more than doubled from last year.

The New Brunswick-based pot company reported net revenue of $25.2 million for the quarter ended November 30, 2019, which rose 102 per cent over the same period last year and surged past the $16.3 million it sold in the previous quarter.

Shares of Organigram closed up 44 per cent Wednesday on the Toronto Stock Exchange.

While investors have been punishing cannabis companies that report major losses, they are rewarding those that can turn a profit.

Organigram said it returned a positive first-quarter adjusted earnings before interest, tax, depreciation and amortization of $4.9 million. In the previous quarter, it reported a negative EBITDA of $7.9 million.

“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter,” Organigram CEO Greg Engel said in a release. “Our team was also successful in shipping the first of our [cannabis] 2.0 products as planned and on schedule in December of 2019.”

The company said it will rollout two new high-THC strains across Canada in the coming weeks following a successful product testing in smaller markets. In the last quarter, Organigram said product returns totaled $1.1 million, which two low-THC dried flower products sold to the Ontario Cannabis Store.

Organigram posted a net loss $0.9 million in Q1, but it added that was “largely due to non-cash fair value changes to biological assets and inventories in the prior year quarter.”

Organigram focuses on producing low-cost, high-THC weed. Photo courtesy of Organigram

Organigram conserves cash

The company received Health Canada licensing for 16 additional grow rooms in the last quarter to bring its total production capacity to 89,000 kilograms per year.

But on a conference call, Engel said the new grow rooms won’t be put to use until more pot shops open in key Canadian provinces.

“We believe consumer demand in Canada continues to be suppressed by the lack of retail stores, particularly in the most populous provinces of Ontario and Quebec. We can more effectively manage cash allocation and put some of the capital to better use elsewhere,” Engel said.

Ontario, which is home to 40 per cent of Canadians, plans to open 20 stores per month starting in April, dramatically adding to the 25 stores that are currently in operation.

Engel said Organigram will carefully watch market conditions before increasing production.

Cannabis lawyer Ranjeev Dhillon says pot companies should be conserving as much cash as possible in the next few quarters until more stores open and the market stabilizes. He warns those that don’t will likely face bankruptcy in 2020.

Read more: Cannabis lawyer forecasts slew of bankruptcies in 2020

Organigram said its currently sits in good shape with $34 million in cash and access to $30 million in an untapped loan.

Company expects to be at front of cannabis 2.0 pack

Engel said the companies that will succeed in the cannabis 2.0 market are those that can deliver quality products efficiently at a fair price.

He says Organigram’s ability produce a gram of high quality cannabis for $0.87 per gram while yielding a high level of THC and CBD is key to the company’s successful 2.0 formula.

Organigram says its Edison vape line will hit store shelves this month (January, 2020). Photo courtesy of Organigram

Organigram started shipping out its Trailblazer Torch vape cartridges Dec. 17 and Engel said its Feather Edison pens will be out as early as next week. Sometime after April, the company plans to rollout its PAX Edison cartridge.

Edison premium infused truffles are expected on the market soon, followed by Trailblazer and Edison chocolate bars.

Rounding out the company’s portfolio of 2.0 products is its dissolvable powder packs that will hit stores in the first six months of this year. The company touts its proprietary nano-emulsification technology to provide an onset time within 10 to 15 minutes.

Although the company refused to provide revenue guidance for the next quarter, Engel said he expects its cannabis 2.0 product line will generate strong sales.

According to Organigram’s website, 16 of the major cannabis analysts give the company a positive rating. The list includes Jason Zandberg of Lightwater Partners Ltd., who told Mugglehead he expects most pot stocks will tumble further in 2020. Zandberg rates Organigram as a buy.

Read more: Analyst skeptical of industry’s high hopes for cannabis 2.0

 

jared@mugglehead.com

@JaredGnam

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