Organigram Is Leading The Cannabis Market Higher

Wednesday, July 14, 2021 | Thomas Hughes
Organigram Is Leading The Cannabis Market Higher

The Rebound Is On For Organigram

Organigram (NASDAQ: OGI), and the entire Canadian cannabis market, have been struggling in the wake of the COVID-19 pandemic. It's not that demand has evaporated so much as it is that stores have been closed and people can't get the product. But that's changing. Canada is rapidly reopening and that includes the cannabis stores. The difference with Organigram versus the other major players is that Organigram is deep into a portfolio revitalization that has it set up to grow and expand margins in the second half of this year.

Mixed Results Drive Organigram Higher

Organigram results are mixed but in a way that has the company set up for growth and improved profitability in the coming quarters. The company's revenue beat expectations but the earnings did not. Earnings were impacted by the company's efforts to clear older inventory in favor of its new product line. Among the many moves the company made during the quarter was to offer the Big Bag of Buds, a 28g bulk product at a value price. This move balances the launch of two new high potency strains under the higher-margin Edison brand and plans to launch up to 20 new higher-margin SKUs before the end of the current fiscal quarter.

So, to get back to the fiscal Q3 results, the company reported $20.32 million in revenue which is up 39% sequentially, 12.8% from last year, and beat the consensus estimate by almost 5000 basis points. The strength in sales was driven by both wholesale and adult-use markets, adult-use use sales grew 40% sequentially, and 10% year-over-year to top $16.80 million with an acceleration expected in the coming quarter.

Moving down the report, the adjusted gross margin came in at -4% versus 23% last year largely due to the product mix associated with the aforementioned value offerings. Margins were also impacted by ramping production, new hires, and acquisitions that are all part of the company's revitalization and growth strategy. The salient factor here is that revenue gains and sales leverage allowed the company to reduce the net loss by 96% to only $4 million leaving it on track for profitability in this calendar year. That profitability will be driven by the higher-margin SKUs the company has been releasing over the past year

As for the guidance, the company says economic reopening and the increase of foot traffic should drive sequentially higher revenue and improved adjusted gross margins in the coming quarter. We like the sound of that.

A New Catalyst Emerges For Organigram

The office of Senator Charles Schumer shocked the cannabis world earlier this week when it revealed plans to submit sweeping cannabis legislation the Congress. Called the Cannabis Administration and Opportunity Act, little details were given but the goal is to legalize and regulate cannabis at the Federal level. While still very early in the process, it is at least a step in the right direction regarding U.S. legalization and an opportunity for Organigram and other Canadian cannabis companies to expand into the US market. 

The Technical Outlook: Organigram Has Begun To Reverse

Shares of Organigram began moving higher in the wake of the Schumer announcement and are maintaining those gains in the wake of the Q3 earnings report. Price action is moving lower in the early portion of the session but appears to be supported above the short-term moving average. Assuming the short-term moving average is confirmed as support, we expect to see the stock begin to slip sideways and edge higher over the next few weeks. This move may gain momentum if the remainder of the Canadian cannabis market reports similar results. 

Organigram Is Leading The Cannabis Market Higher

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
OrganiGram (OGI)1.7$2.59-1.1%N/A-5.08Hold$4.22
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