Profitability Outlook Accelerated In Wake Of OrganiGram Results
OrganiGram NASDAQ: OGI reached a turning point in Q1 in which profitability became truly in reach. The company updated its outlook for profitability from Q4 to Q3 of the current fiscal year and the outlook is accelerating again. The Q2 results were boosted by faster than expected realizations of synergies related to the Laurentian acquisition and should provide a tailwind to what was already a positive outlook for the company. The bottom line is that, after years of reorganization and waiting by the market, it looks like the bottom is in for OrganiGram stock and a rally is about to unfold.
“We are also progressing well with the Laurentian integration. In less than three months we have been able to significantly increase distribution and begin to implement the synergies planned at acquisition. Automation to optimize production is also underway and expected to be complete by the end of Fiscal 2022."
OrganiGram Turns Profits Two Quarters Ahead Of Schedule
OrganiGram had a truly great quarter producing $31.84 million in sales for growth of 117.5% over last year. The sales are 2600 basis points ahead of the Marketbeat.com consensus and due in part to the Laurentian acquisition. Sales are also driven by the company’s efforts to improve its product line, deepen penetration within its home province, and grow into Canada’s other major cannabis markets. The company reports its market share hit 8.2% of the total for the 2nd month in a row and it is #1 in the dried-flower category. Dried flowers are Canada’s largest cannabis segment and more than 50% of all revenue so that is important news.
Moving down the report, the news only gets better. The company reports its cost of sales fell 20% versus last year while impairments related to inventory fell by 26%. SG&A increased due to expansion and inflationary pressure but not enough to offset the revenue strength and reduction in costs. This left the adjusted gross margin at 26% and adjusted EBITDA at $1.6 million or 5.05% and in positive territory two full quarters ahead of earlier estimates. Based on the trajectory of the business, we see both revenue and margin improvement on a sequential basis for the next several quarters at least.
“The additional revenue from Laurentian, and continued growth in recreational and B2B sales, combined with improving margins through improved operational efficiencies, allowed us to achieve positive Adjusted EBITDA two quarters earlier than originally projected,” stated Derrick West, Chief Financial Officer. "Our strong balance sheet and cash position as well as the completion of our facility expansion to meet market demand, positions us well to deliver sustained value to our shareholders.”
The Technical Outlook: OrganiGram Moves Above The 30-Day EMA
Price action in OrganiGram has been bottoming over the past few months and now looks ready to move higher. The results plus the recent deal with Tilray (NASDAQ: TLRY) have the market poised for a rally and the indicators are consistent with this view. The stochastic is already firing a bullish signal low in the range and MACD is set up for the same. The risk is resistance at the $1.80 level but we think that will be broken fairly easily. The bigger risk is resistance at the $2.00 level which we think will be harder to break. A move above $2.00 would be bullish but if $2.00 can’t be overcome range-bound trading until the next big news comes out is the most likely scenario.
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