Organigram, A Growing Cannabis Micro-Cap
Organigram (NASDAQ:OGI) is not the largest Canadian cannabis producer by far but it is one that investors should be watching. While others like it have been falling by the wayside this company has not only weathered the storm but come out in better shape than before. By storm, I am not referring to the pandemic although that plays a role as well.
What I am talking about is the mad rush to dominate the Canadian market and subsequent contraction when reality set in. the Canadian market is still oversupplied but that issue is beginning to equalize, and headwinds are diminishing. Within the market, there are still opportunities for growth and Organigram is well-positioned to take advantage.
Organigram Moves Up On Mixed Results
Organigram’s results for the fiscal 4th quarter are mixed but once you get over the headline the news is more good than bad. On the top line, both gross and net revenue grew high-double digits due to an increase in sales. Gross revenue outpaced the net due to an increase in excise tax but even at the net-level revenue growth topped 25.2%. The $20.4 million reported is not only a strong showing for the company but more than 30 basis points above the consensus target.
Revenue growth was driven by higher flower sales particularly in the value segment. Revenue was also impacted by sales of 2.0 products that were not legalized in the 4th quarter of last year. 2.0 products include vaporizers, edibles, and beverages.
In my view, and in the market’s, the whopping beat on the top line more than mitigates a miss on the bottom line. The GAAP loss of ($0.20) missed the mark by ($0.17) and is due to higher marks-downs and losses relating to unsaleable products than in the 4th quarter of last year. The silver lining here that this is not unexpected and the company has been working since the first half of fiscal 2020 to cut back on production levels; this problem should diminish very quickly. Among the efforts is a 25% reduction in workforce as well as delaying the completion of uneeded expansions.
“Our team is more focused than ever on enhancing our agility and execution to capture top-line growth and we believe we have the capital resources and liquidity to support us. We have always operated with financial discipline to pursue profitable growth which is again reflected in positive adjusted EBITDA in full-year fiscal 2020 for the second year in a row,” said Greg Engel, CEO.
Organigram’s Healthy Balance Sheet Comes At A Cost
Organigram has a healthy balance sheet and cash flow enough to sustain operations for the foreseeable future. The company is sitting on a very low level of debt for a cannabis company and working on getting it even lower. The catch is that funds are being raised through dilutive offerings that will weigh on investor value for the near to short-term at least. The last was an equity offering worth $66.5 million. The offering totaled 32.5 million units equaling one equity share and one warrant for an equity share bringing the net effect of dilution to -8% on a YOY basis.
The Technical Outlook: A Buying Opportunity In Organigram
Shares of Organigram popped more than 3.5% in the early premarket action following the Q4 report and look like they will head higher. The shares have been trading near a strengthening support level for months and are showing signs of reversing an 18-month downtrend. The indicators are set up nicely showing bullish crossovers in both stochastic and MACD. Assuming the market follows through on this signal shares prices could move up to the $1.50 and then $2.00 regions very quickly.
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