Organigram Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 8 speakers on the call.

Operator

Good morning. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the OrganiGram Holdings Third Quarter Fiscal 20 24 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session. We ask to please limit yourself to one question and one follow-up question.

Operator

Thank you. Mac Swartz, you may begin your conference.

Speaker 1

Thank you very much and good morning everyone and thank you for joining us today. As a reminder, this conference call is being recorded and a recording will be available on OrganiBram's website 24 hours after today's call. Listeners should be aware that today's call will include estimates and other forward looking information from which the company's actual results could differ, please review the cautionary language in our press release dated August 13, 2024, on various factors, assumptions and risks that could cause our actual results to differ. Further, reference will be made to certain non IFRS measures during this call, including adjusted EBITDA, adjusted gross margin and adjusted gross margin percentage. These measures do not have any standardized meaning under IFRS and are intended to provide additional information and as such should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Speaker 1

Our approach to calculating these measures may differ from other issuers, so these measures may not be directly comparable. Please see today's earnings report for more information about these measures. In this call, references to fiscal 2023 are to the 13 month period from September 1, 2022 through September 30, 2023 references to Q3 fiscal 2024 are to the 3 month period ended June 30, 2024 and references to Q3 fiscal 2023 are to the 3 month period ended May 31, 2023. Listeners should also be aware that the company relies on reputable third party providers when making certain statements relating to market share data. Unless otherwise indicated, all references to market data are sourced from Hi Fire in combination with data from weed collar, provincial boards, retailers and our internal sales figures.

Speaker 1

Today, we'll be hearing from key members of our senior leadership team beginning with Tina Goldenberg, Chief Executive Officer, who will provide opening remarks and commentary, followed by Greg Gouyette, Chief Financial Officer, who will review our quarterly results for Q3 fiscal 2024. With that all said, I will now introduce Vina Goldenberg, Chief Executive Officer of OrganiGram Holdings, Inc. Please go ahead, Ms. Goldenberg.

Speaker 2

Thank you, Max, and good morning, everyone. We appreciate you all joining our call today and for your continued support of OrganiGram, one of Canada's leading and most innovative cannabis companies. Q3 fiscal 2024 saw OrganiGram achieve significant milestones in targeted growth areas that we highlighted in our earnings call at the start of our fiscal year. Those areas include continuing to grow our domestic business by focusing on innovation and quality, expanding our global footprint and diversifying our international revenue, achieving cost savings associated with our previously completed CapEx programs and strategic investments and maintaining a strong balance sheet that allows us to be opportunistic in an evolving market landscape that is rationalizing. First, I want to highlight our domestic performance this quarter.

Speaker 2

Our Canadian recreational business in Q3 grew 25% year over year, driving our overall net revenue for the same comparison period. We have also grown our net revenue sequentially every quarter in fiscal 2024 thus far, achieving over 9% growth versus Q2, and we expect continued revenue growth in Q4. There's no question that Canada is a tough market owing to high competition and onerous regulations. As of the end of Q3, there were 25 LPs with 1% or more market share, up from 20 last year. And there are now 153 LPs with at least $1,000,000 in sale, contributing to average market share erosion for the top 10 LPs of 0.4 points year over year.

Speaker 2

In contrast, OrganiGram has outperformed these statistics, gaining 0.6 points year over year in Q3 and has maintained a market share of over 7% for 8 consecutive months as of the end of July. It's tough to hold on to market share in this landscape, let alone grow it. OrganiGram has further narrowed the gap between itself and the number one LP in the market to only 2.4 percentage points as of June. Q4 should be the largest quarter in Canadian cannabis history, on track to hit $1,500,000,000 in aggregate retail sales for the industry. OrganiGram maintains a highly competitive position and should benefit disproportionately from this growth over time.

Speaker 2

This quarter marked the 3rd consecutive quarter that OrganiGram was a top 5 LP in every jurisdiction in Canada. Our market share performance was punctuated by gains in Canada's 2nd most populous province, Quebec. Our Quebec market share grew to 9.3% in the quarter compared to 8.2% in the prior year comparative period. We also hit our highest market share in the province in June, finishing the month with 9.5% share. We are proud to have achieved our highest market share ever of 25.8% in our home province of New Brunswick compared to 20% in the prior year's comparative period.

Speaker 2

Our dominance in Atlantic Canada continues to be unmatched with 16.8% combined market share. From a product standpoint, we continue to show our strength in several categories, holding the number one position in mills flower, hash and pure CBD gummies. We hold the number 3 positions in dried flower, edibles and overall pre rolls. As of the end of Q3, OrganiGram held the overall number 3 market position in Canada. We have said for some time, our success is driven by our commitment to innovation.

Speaker 2

We shared some exciting news last week regarding the first new technology to be commercialized by OrganiGram, leveraging the output of the product development collaboration with BAT, our new FAST nanoemulsion technology. FAST, which stands for Fast Acting Soluble Technology, has shown promising preliminary results from what we believe was the largest PK study ever undertaken to understand the effects of recreational cannabis products. The results of the study have given early indications of technological advances, including but not limited to faster onset compared to traditional ingestible products from the control group. Depending on ingestible format, up to approximately 50% faster onset of the effects of cannabis was observed. Improved bioavailability of cannabinoids, up to double the cannabinoid delivery at peak compared to the control group and early indicators of a more predictable duration of the effects of cannabis showing promising signals for the development of future offset claims subject to additional supporting studies.

Speaker 2

Manufacturing scale up for gummies utilizing this technology is underway in our Winnipeg facility and we are currently on track to launch them in the fall. We feel confident that our investment in this technology will contribute to our continued success in edibles domestically where we hold 16.7 percent market share and help us penetrate ingestible markets abroad in the future. Now I'd like to discuss our international business. In Q3, we announced the most significant development relating to our international expansion to date, an approximately $21,000,000 investment into German cannabis leader Sanity Group deployed from our Jupiter investment pool, which is focused on emerging opportunities in international markets. The investment is exciting for several reasons.

Speaker 2

One, it allows us to establish our first foothold in Europe through Germany, which as of April 1, paved the way to becoming the world's largest federally legal adult use cannabis jurisdiction. 2, Sanity is already a leading cannabis company in Germany with the number 2 flower brand in that market and is also operating 2 dispensaries in Switzerland through their pilot project. We believe they are well positioned for growth in Germany and the wider EU market where there is currently less saturation than in the U. S. Or Canada, so first mover advantage will likely matter more.

Speaker 2

3, the investment enhances the previous supply agreement that was already in place between OrganiGram and Sanity Group, with Sanity having now increased its purchase commitments. Upon OrganiGram receiving EU GMP certification percentage of its total flower assortment for OrganiGram. And 4, Germany is viewed as the most important new legal cannabis market in the world due to its large cannabis friendly population, its political influence and geographic adjacencies to markets contemplating adult user medical cannabis. Now in addition to the anticipated increase in cannabis volumes down for Germany resulting from our investment in Sanity, OrganiGram continued to diversify its list of international customers in Q3, signing 2 new supply agreements with customers in Australia and the UK. OrganiGram now has 7 supply agreements across Germany, Israel, Australia and the UK and is currently evaluating additional global partnership opportunities and strategic investments.

Speaker 2

Moving on, I'd like to focus for a moment on our savings initiatives and efficiencies achievements in this quarter, resulting from investments in automation, adjustments in our manufacturing methods and advantages garnered from our strategic investments. In Q3, OrganiGram harvested 21,420 kilograms of dried flower, representing an increase of 15% compared to the same prior year period. 42% of our harvests in Q3 exceeded 26% THC compared to 25% of our harvest last quarter, an increase of 17 percentage points. Our average yield this quarter broke an organogram record at 185 grams per plant. While yields have historically fluctuated and may continue to do so from time to time due to changes in our cultivar mix, we are encouraged by this achievement.

Speaker 2

The yield increase of 28% versus the same prior year period and almost 13% sequentially is supported by changes we have made to our cultivation processes and by realization of benefits from our strategic investment in Filos. At our Monken facility, consolidation of plant care and harvesting rules reduced waste and contributed to enhanced quality during the harvesting process. It seems you get a better product when the person who cares for the plant is also the person who harvests it. And we know our customers will notice the difference this additional care makes to our already great product. We saw further efficiencies in post processing through streamlining testing, increased throughputs and waste reduction.

Speaker 2

At our edibles facility in Winnipeg, we completed trials for reducing cannabinoid waste that is expected to deliver meaningful savings fiscal 2025 by changing to in line active dosing tanks for our continuous edibles line. And in Lac Superior, our expanded cultivation is providing cannabis for our revitalized Trailblazer and Woola brand, which are meeting the needs of our Quebec customers with Quebec grown premium cannabis. Also in Q3, we harvested we completed harvests of 3 seed based production rooms. Our seed based capabilities stem from our strategic investment in Filos Bioscience, which is exceeding our expectations to date. This led to our decision to fast track the partial funding of the final investment tranche in Filos, which we announced in July.

Speaker 2

The early funding resulted in an expanded final milestone, which requires Filos to deliver 21 unique auto flower seed varietals for testing and phenotyping by the end of September this year, followed by a second cohort of 21 more by January 2025. Further, OrganiGram received an expanded genetic license from Filostat in addition to the whole flower THCV for which we have exclusive rights in Canada include access to high potency CBG, CBC and CBDV seed based cultivars. Our first three seed based harvests yielded an impressive 200 grams per plant and an average THC potency of 25.5 percent. 4 additional rooms were harvested in July and by the end of the calendar year, OrganiGram expects to achieve its goal of approximately 30% of production coming from seats. We further anticipate averaging between 20% to 30% seed based production throughout fiscal 2025 as we optimize production schedules and business requirements.

Speaker 2

Other benefits from seed based production includes faster cycle time, which we expect will allow OrganiGram to increase its production output without additional CapEx and improve client consistency, quality and resilience. We continue to measure against our guidance of $10,000,000 of savings this year that we outlined at the end of fiscal 2023, resulting from investments in automation, in house lab testing and remediation, freight optimization and changes in production processes. In Q3, we realized approximately $2,700,000 of these savings. Fiscal year to date, we have delivered approximately $7,900,000 and we are on track to meet this $10,000,000 target. Finally, OrganiVram continues to maintain one of the healthiest balance sheets in the industry with $173,000,000 in pro form a cash as of the closing of the final BATE funding tranche.

Speaker 2

As a reminder, we expect to close the second $41,500,000 tranche later this month and the final tranche of BAT's $124,600,000 follow on investment at $3.22 per share is expected to close in February 2025. In addition to our ample cash position, we maintain effectively 0 debt, which makes us a rare find in the cannabis industry and allows us significant financial flexibility. This concludes my comments, and I will now turn the call over to Greg to discuss our financial results for the quarter.

Speaker 3

Thank you, Bina. We are pleased with the progress OrganiGRANT has made from a financial perspective with the return to generating adjusted EBITDA in the quarter. As Bina mentioned in her comments, our net revenue grew by 25% versus Q3 last year and over 9% sequentially. At the same time, our gross margins have seen a significant improvement owing to higher yields and increased operating efficiencies in the business. While yields and THC content will fluctuate over time, the trend we have seen over the last 2 years has been higher yields and higher potency.

Speaker 3

In our Q2 earnings call, we highlighted that we would begin to see lower cost flower harvested in Q2 flow through in Q3. That is indeed what we have seen and the record yield of 100 and 85 grams per plant that Dima mentioned contributed to the improved adjusted gross margins in the quarter. Our adjusted gross margin rate in Q3 showed a meaningful increase to 36% from 19% in Q3 last year, an improvement of 17 percentage points. Sequentially, we saw a 5% or 5 percentage point increase. The combination of higher sales and higher adjusted gross margin rate resulted in a 139% increase in gross margin dollars year over year to $14,600,000 The year over year increase was attributable to several factors, including lower cultivation and post harvest costs, reduced inventory provisions and lower depreciation resulting from impairment charges recorded last year.

Speaker 3

In addition to our gross margin improvements, we also reduced our operating expenses in Q3. Adjusting for impairments realized in the prior year period, total operating expenses in Q3 decreased by 20%, Driving the lion's share of that change was a 22% decrease in SG and A to $14,800,000 in Q3 from $19,000,000 in the prior year period, resulting from lower costs associated with the implementation of the first phase of our new ERP system, lower professional fees and cost savings on our insurance programs. As a result of our increased sales, improved margins and lower SG and A costs, we are pleased to report adjusted EBITDA of $3,500,000 compared to negative $2,900,000 in the same prior year period. As we mentioned last quarter, fiscal 2024 adjusted EBITDA is expected to outperform fiscal 2023. Net income this quarter came in at $2,800,000 compared to a net loss of $213,500,000 in the same prior year period.

Speaker 3

The increase in net income versus the comparative period is primarily due to higher revenues from recreational cannabis in Q3, net fair value gains on our investments and financial assets. Last year included an impairment charge of $191,000,000 From a cash flow perspective, net cash used in operating activities before working capital charges or changes was $200,000 in Q3 fiscal 2024 compared to a use of $14,800,000 in the prior year period. The improvement was primarily due to higher recreational cannabis revenue and the reduced costs realized during the quarter. Cash used in investing activities in Q3 was $14,900,000 which was driven primarily by the investment in Sanity Group and partially offset by a net change in restricted funds and proceeds from investment income. This compares to cash used activities in Q3 fiscal 2023 of $3,400,000 which was comprised of our investments in Green Tank and Filos, partially offset by proceeds from the net redemption of short term investments, proceeds from investment income and a net change in restricted funds.

Speaker 3

On the topic of cash, we are pleased to reiterate that we have one of the healthiest balance sheets in the industry. As of June 30, 2024, we had a total cash position of $89,500,000 including both restricted and unrestricted cash. We had negligible debt and as Bina mentioned our pro form a cash position after the closure of the second and third PAT tranches is approximately $173,000,000 At the end of last quarter, we mentioned on our Q2 earnings call that we felt the back half of this fiscal year would demonstrate our ability to generate sustainable positive financial results. Given the results we have reported today, supported by increased operational efficiency and OpEx savings, a 5 quarter trend of incrementally higher sales, higher margins and a growing international footprint, we feel confident that we have demonstrated that trajectory. Q4 is already shaping up to be exciting as we ramp up production for the launch for our nanoemulsion gummy, continue to lean in on seed based production, realize more of the cost savings we have already outlined and drive international growth.

Speaker 3

This concludes my comments. I will now turn the call back over to Bina.

Speaker 2

Thank you, Greg. We are pleased with our solid financial results. Revenue is up, margins are up and costs are being managed. We have built a strong foundation on which to execute our growth plans and are well positioned to capitalize on the opportunities ahead of us at home and abroad. Once again, I'd like to thank everyone on the call for their support and interest in OrganiGram.

Speaker 2

I will now open the call up for questions.

Operator

Our first question comes from the line of Aaron Grey with AGP. Your line is open.

Speaker 4

Hi, good morning and thank you for the questions. Congratulations on a nice quarter there. Thank you. So first question for me, just on the EU GMP, Bina, I believe you said that that's expected in the near term. Could you just provide any more additional color on when you're expecting that?

Speaker 4

And are there any additional things you would need in terms of export licenses or otherwise that would hold you up to be able to utilize that EU GMP to export? And then secondly on that, just with standard of the group being a purchaser, and how you just look to allocate capacity domestic versus international once you receive the EU GMP approval? Thank you.

Speaker 2

Sure. So thank you for the question. So, we have been EU GMP ready since much earlier this year and are just awaiting the German regulator to come out to do the audit of the facility. We would have liked them to come out already. This is just a scheduling issue.

Speaker 2

So we expect it will happen in the fall. And once you have the audit, we expect it will take a couple of months for the paperwork to get the certification. So, we feel comfortable that early in calendar year 2025, we should have our certification and be ready to start capitalizing on using that certification. Until such time, we continue to supply our GACP flower internationally, but obviously it has to go through additional steps. So we look forward to leveraging that certification in the future.

Speaker 2

In terms of your question with regard to how you're going to allocate our volume, we would obviously prioritize international sales simply because without the excise, it's higher margin business and then protect our branded business domestic recreational sales. This past quarter, we've had some opportunistic sales to B2B customers in the domestic market. That is the area that we would reduce as we continue to expand our international business. Obviously, both from a margin and competitive standpoint, that makes sense.

Speaker 4

Okay, great. Thanks for that. It's really helpful color. Second question for me, a real nice uptick in the gross margin came ahead of our estimate. So just want to get some color in terms of how much more room there is for gross margin expansion there.

Speaker 4

You talked about some of the seed based initiatives you have and some more benefits come there. You're also going to have initial margin capture once you get the EU GMP flowing through in 2025 and now it sounds like. So just some expectation in terms of where you believe gross margins can get you for you guys? Thank you.

Speaker 3

Yes. Thanks for the question. Look, we're really happy with where we are at 30% adjusted gross margin and we're going to do everything we can to try to work on that trajectory. I think in the short term maintaining margins around this sort of range of 36% is probably reasonable. As the international business scales up further next year, I think that's where we'll be looking to get some benefit from that.

Speaker 3

But at this point, we're really happy with where we are and the cost savings initiative that we put in place, the increased yield per plant and our our lower cost per gram are really the contributors there. But at this point, I think, you know, in the range that we're at is where we think we'll be for the next quarter or 2 at least.

Operator

And your next question comes from the line of Pablo Zunich with Zunich and Associates. Your line is open.

Speaker 5

Thank you. Good morning, everyone. Bina, can you comment any color or feedback that Sanity may have given you in terms of what happened in Germany in the Q2? I mean, some companies have talked about significant growth from April to July. Any color you can give in that sense would be helpful.

Speaker 5

And I ask this question in the context of the reported data coming out of Germany says that imports were up about 50% between 1Q and 2Q. But when we look at the large LPs numbers that have been reported, we didn't see much growth there. So I wonder where that's coming from. So it's a 2 part question. Thank you.

Speaker 2

Sure, Pavel. So thanks for the question. Absolutely, we have heard the same from Sanity in terms of business doubling from since April 1. The challenge that most German companies are running into right now is securing the incremental revenue sorry, incremental volume to deliver even more upside to their revenue. So here's the challenge with a product that takes 5 months from the time you plant it till you harvest it and you get it out to the market.

Speaker 2

When business grows exponentially, it's hard for the volume to catch up to be able to supply the market. And that's why you're not seeing as much product shipping from the LPs in Canada. If that will go up, Germany wants the product. Sanity Group has asked for more. They certainly feel that they are being they are restricting their upside opportunity because they don't have the volume.

Speaker 2

And we're doing everything we can to get the product ready to ship over there. And it's just a time challenge on the ramp up really that you're facing right now. But it's an exciting opportunity. Sanity has told us about the growth. We're seeing it from other German customers and Sanity has more initiatives they want to do.

Speaker 2

So we're excited to get that product ready to be able to ship it over to them.

Speaker 5

Thank you, If I can just follow-up here. In terms of Jupiter's investments in the U. S, in the case of OBX, right, on hemp extracts, any concerns about the bans we are seeing at the state level or they haven't really materialized bans on chem derivatives? What are the people from OBX telling you? And then second part, would you be looking at making investments through Jupiter in U.

Speaker 5

S. MSOs, right? We've seen other companies do that through with car rails. Is that something that you would also consider? Thank you.

Speaker 2

So let's answer the question about OBX. We are tracking with them what's happening on the front of hemp derived derivatives. We are following what's happening with the Miller amendment to check what's going on state by state. We have confidence that there are some states who have already put in regulations that will maintain the availability of hemp derived cannabis offerings. So, we feel good that there will be a market there.

Speaker 2

But we're watching the regulations closely with OBX to understand how this will roll out. And it will influence our next steps in the delta-nine space in the U. S. So that's a bit of a regulation watch and then make decisions coming out of there. In terms of your second part of your question about U.

Speaker 2

S. Opportunities, look, there were a lot of inbounds, as soon as we announced the Jupiter investment pool. There are a lot of companies that are strapped for capital that would like an investment. But we're at this point where we have to make sure what we do in the U. S.

Speaker 2

Obviously is compliant with our listings. We have watched what some of our peer groups have done. We have historically said that our priority is to make sure that our investments are not passive investments. You could always invest in a real estate arm of 1 of the MSOs and meet the guardrails. But that's not something that we would typically want to do.

Speaker 2

We're looking for more strategic investments that have long term opportunities for us. We're looking at how to leverage some of our IP in the U. S. Market. And those are things that we'll continue to look at.

Speaker 2

U. S. Is a priority market for us. It's taking us a little bit more time just because it's a little bit more challenging. But, it's a focus and hopefully we'll have something to report soon on that front.

Operator

And your next question comes from the line of Frederico Gomes with ATB Capital Markets. Your line is open.

Speaker 6

Hi, good morning. Congrats on the quarter. Thanks for taking my questions. Vina, you mentioned the improvement that you saw, I guess, in yield per plant and a record for OGI. Does that have any relation to your seed base production or is it related to other factors?

Speaker 6

And then just in terms of the seed based production, can you remind us about what's the impact in terms of margins that would have to you? Thanks.

Speaker 2

Okay. Certainly. So first of all, as I mentioned in my remarks, the 3 rooms we harvested in Q3 from seed based production generated an average 200 grams per plant. So certainly that helps the overall number, but 3 rooms out of somewhere between 5560 rooms aren't going to drive the number. So our overall yield is coming up on our regular clone based production as well as the benefit of the waste.

Speaker 2

We will continue to add some more seed based production and that will help us. Obviously, we will optimize our production as we continue to go. But what seed base does for us is a couple of things. Number 1, the cycle time is shorter. So you don't go through the whole pre veg stage.

Speaker 2

So you have perhaps cycle time of around 70 days versus 100 days in a normal clone based production. So that gives us more turns in our facility, which will give us more volume that obviously that we could sell, so that increases capacity. But secondly, it also with as we move from Elite Seeds, so we're now currently using Elite Seeds. But as I mentioned, that one of the reasons we fast tracked the Filos, sort of a partial payment of their final tranche was to get some autoflower seeds. And the difference with autoflower seeds, not only do you get the benefit of the cycle time, so extra capacity, but there's less plant care required for those seeds.

Speaker 2

So there's a significant labor savings. So as we convert over between elite seeds to auto flower seeds, there's further margin improvement to be had. Exactly the quantity, well, we have to still run our trials to provide that number. But the plant science work that we've done already suggests that there is significant labor savings that will help on our overall cost program.

Speaker 6

Thanks for that. And then in terms of the pricing, I guess, environment in Canada, I believe your average selling price for flower was sort of flat quarter over quarter. So can you just comment on that in terms of how do you see that market evolving? Do you think we are finally going to be stable here and maybe increasing prices? So just any comment there because I know that the market remains very challenging, but we're seeing some stabilization here?

Speaker 2

Yes, absolutely, Fred. So we are seeing that pricing on flower has stabilized. As a matter of fact, it's ticked up a bit. We certainly saw it on our B2B sales that we were able to sell for a higher price per gram than a year ago. So there is benefit there.

Speaker 2

And we've also taken some pricing on our large format big bag of buds because there's opportunity. So we are seeing supply and demand come into play and that's good on flower. Our business has remained flat in terms of average price and that one is purely a mix issue. So if you sell less on international sales, when you sell more big format versus small format, you'll get that mix impact. But like to like on a 28 gram format, we've actually seen a pickup from pricing.

Speaker 2

So I think that the low is behind us at this point in the supply and demand picture in Canada. That being said, we do see price compression in other segments. So for example, on the edible side, we are feeling some price compression there on edibles, which has historically been more focused on flower pricing. Now with a little bit of excess capacity or maybe some competitors that are just on the verge of being around sort of needing to generate revenue to just handle some of their cash requirements. They're taking pricing down, which is not really the greatest thing for the overall industry and for the edible segment.

Speaker 2

But over time, we hope that sort of irrational behavior will go away and that we have great quality products. We're really excited about our nanoemulsion gummies that are coming out. And we hope to see pricing come back into that segment as more differentiated products get out there.

Operator

Your next question comes from the line of Yewon Kang with Canaccord Genuity. Your line is open.

Speaker 7

Hi, good morning. Thank you for the question. Obviously, congratulations on a fantastic quarter. Nice to see sequential increases across virtually all metrics. Just my first question here is regarding Germany.

Speaker 7

Now that we're a few months past the April 1, Kanji enactment, can you comment on any of the trends that you've been seeing with respect to the increased consumer demand for medical cannabis there along with increased supply becoming available in the market, particularly by Canadian LP exports and its impact on the pricing dynamics in the initial days there? Thank you.

Speaker 2

Sure. So again, like I said, we certainly have seen an increase in through we've heard from Sanofi, there is an increase in demand for medical cannabis. Definitely the sense that people who were buying from the illicit market are moving over and picking up their cannabis at pharmacies. I think, again, this is something that is it was a pent up demand, but we do expect it to continue to increase as supply becomes more readily available. So early days, the pharmacies were even having trouble getting product out to the people who are coming in to purchase cannabis.

Speaker 2

And there's still this delay between supply getting out from all international markets into Germany. So as we work through those challenges, I think we're going to see even greater volume going through the going through that market. And we're very excited about it. I mean, it's a good indication. And Sanity Group is just ready to open up their telemedicine platform.

Speaker 2

And again, that one, they're just waiting on getting the right amount of supply to make sure they kick it off and could supply their customers. So all signals out of Germany are there is upside happening and there are a lot of LPs ready to supply that market. We're excited because obviously our investment in Sanity guarantees us a certain amount of flower being shipped in. But there's other customers in Germany that are looking for volume as well. So it's an exciting market.

Speaker 2

Like Germany is going to be the next big phase wave of growth and it's a very good opportunity for us.

Speaker 7

Thanks for that. And if I could just ask my second question as a follow-up. Regarding the yield and potency KPIs that you guys maintain in terms of operational improvement, I think it was mentioned as part of the prepared remarks that these operational KPIs will fluctuate from time to time and that it will have an impact on margin performance over time. I was just wondering what kind of activities would make it more stable throughout and your expectation on the margin performance going forward should the yields and potency results become more stable throughout?

Speaker 2

So just to be clear, if the yield and potency is very predictable for a specific cultivar. But again, demand on the different cultivars changes and that will be why you have fluctuations. So, if more people want a cultivar that perhaps has a slightly lower yield when you grow it versus another cultivar that has higher yields, right, there's a mix between not all plants grow exactly the same. Obviously, we continue to improve the yield on all plants as we work on them, but just physiologically, some plants will grow bigger or higher yields. And so the fluctuations are going to be there as long as there's a cultivar mix fluctuation.

Speaker 2

Over time, it would be simple if everybody bought just one cultivar and you just grew your whole facility of 1 cultivar, but that's not reality. I know our operations people would have loved that. But because there's mix and consumer demand for different types of terpene profiles, aromas, different there will be that mix impact. And that's what's causing the fluctuation. I think over time, we will continue to drive higher numbers, but we will still see ups and downs depending on the rooms that are harvested in that quarter and what we've grown in those rooms.

Operator

And at this time, I would like to thank everyone so much for joining us today. This does conclude today's conference call and you may now disconnect.

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Key Takeaways

  • 25% year-over-year growth in Canadian recreational revenue and 9% sequential growth, with OrganiGram gaining 0.6 percentage points of market share year-over-year and holding over 7% share for eight consecutive months.
  • On track to launch FAST nanoemulsion gummies in the fall, leveraging a BAT collaboration to deliver up to 50% faster onset and double the peak cannabinoid bioavailability compared to traditional edibles.
  • Invested approximately $21 million in Germany’s Sanity Group, setting up a European foothold ahead of expected EU GMP certification in early 2025 and expanding OrganiGram’s seven supply agreements across four international markets.
  • Achieved record cultivation yields of 185 grams per plant (up 15% YoY) and scaled seed-based production, driving operational efficiencies that have realized $7.9 million of the targeted $10 million in cost savings for FY 2024.
  • Returned to positive adjusted EBITDA of $3.5 million (versus a $2.9 million loss last year), improved adjusted gross margin to 36% (from 19%), and maintains a pro forma cash balance of $173 million with effectively zero debt.
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Earnings Conference Call
Organigram Q3 2024
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