RE:Financials Should CanniMed eventually decide to be acquired by the cash-rich Aurora, my personal belief is that the next company that could fall squarely on the radars of Canada's major players is Organigram Holdings (NASDAQOTH:OGRMF).
Why Organigram? To begin with, the company is branching out beyond just dried cannabis. Though investors often think of marijuana sales in terms of dried cannabis, there are higher margins to be had with extracts and cannabis oils. As noted in Organigram's third-quarter operating results, released in late July, it sold nearly 190,000 milliliters of cannabis oils, compared to none in the year-ago period. Even though dried cannabis sales fell year over year, the higher-margin revenue from oils helped push net sales higher by 6%, year over year.
Second, Organigram is locked and loaded to become a recreational weed supplier to the New Brunswick market, assuming legislation in parliament allows for such a move. In September, the company entered into a memorandum of understanding with the New Brunswick provincial authority to supply a minimum of 5 million grams of dried cannabis a year, which is estimated to have a $31 million to $47 million value annually.
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And perhaps most importantly, Organigram is dreaming big. Considering the expected surge in demand from the recreational market in Canada, it announced in October its intent to hire up to 140 new employees and triple the capacity of its existing grow facility from 36,000 to 134,000 square feet. This would boost capacity from 5,200 kilograms annually to around 25,000 kilograms per year.
Because Organigram is going up against some industry Goliaths, and its pockets aren't nearly as deep as those of Canopy Growth or Aurora Cannabis, both of which have in excess of $268 million in cash and cash equivalents on their balance sheets, being acquired and combining forces with a larger, cash-rich player might make sense.
Of course, investors should keep in mind that acquisition hype is a very poor reason to buy into a stock. Organigram does have its expansion fully funded, and it's focused on higher-margin oils, which are positives. However, profits remain elusive, and its pricing power could be challenged as bigger players flood the market with dried cannabis. As a stand-alone investment, I do see better opportunities in Canada. However, if it is acquired, there could be a reasonable premium in it for shareholders.