When I heard about it, shortly before the press release went out, I thought the internet would explode from its heat. Surely it would be perceived as a gamechanger. I mean, for a new market with a lack of patients, any deal that delivers blocks of them must be massive, right?
Right?
Organigram (
TSX:V.OGI,
Stock Forum) essentially
secured an LOI for an off-take deal with a chain of ‘healing centres’ that would see them moving up to 4500 kilograms of medical marijuana through 2016, with a 20% increase each year beyond that for ten years, for use in the treatment of Post-Traumatic Stress Disorder (PTSD) by veterans, the military, and first-responders.
The math on this is simple: Organigram, even if they sell at a conservative $5 per gram, could sell 3 million grams just in 2016 alone, for $15m in revenue.
In 2015? $7.5 million.
This on top of its ongoing business.
Make no mistake, this is a big deal for two reasons.
- It locks in the first seven-digit revenue agreement in Canadian medical marijuana history, at a time when other companies are struggling to do six figures per quarter across the board.
- I’m led to believe this is an INSURANCE BACKED deal. That is, the healing centres are going to be treating the ill with medical marijuana and processing the costs through the patient’s federal insurance.That second point is potentially massive. It locks in ongoing revenues, allows patients to get access to plenty of medicine, and mainstreams the treatment to a point where insurance companies can become quickly conditioned to green-lighting medical marijuana for other conditions.
When insurance becomes part of the MMJ landscape, the profit party begins.
In addition, by moving into this space, Organigram can begin looking south, at a market where PTSD is so prevalent that a large segment of the population is either affected by it, or is close to someone who is.
Also part of the deal: THC will conduct research on medical marijuana and PTSD going forward to help mainstream the treatment.
Organigram, with this deal, graduates, leads and delivers on its promise.
Every other marijuana company out there is looking to grow their patient list, and Organigram just grew theirs by potentially thousands.
Trauma Healing Centers will open 13 centers across Canada as part of their phase one rollout. The first four centers will be in Edmonton, Ottawa, Quebec and the Halifax Region in January, with nine more opening across Canada by June 2015.
Why not open in Vancouver? Because Vancouver has a dispensary on every corner right now, most of which are moving gang-grown product and staffed by guys with neck tattoos and Affliction t-shirts. I’m told there’ll be city wide push to close most of those down in the New Year, which will open the market for real companies that have background checks and follow Health Canada rules to emerge. Good for patients, good for LPs.
I know other companies were talking to Trauma (AKA: THC - did you miss that?) about doing a deal, but Organigram CEO Denis Arsenault told me last week, “They were just treating it like a business opportunity. This is veterans. This is important. We’re going to make money on the deal but we’re not turning the screws, we want the product out there and there’s no greater need than those who’ve served and have PTSD coming home. So we’re working closely with Trauma and we couldn’t be prouder to have got their okay. Every one of us at Organigram considers it an honour to be able to help.”
Not a bad lead-in to Remembrance Day but, oddly, the market pretty much missed the significance of the news.
Organigram stock has been pushing in the green direction for a week or so but, to me, this deal is a company maker. It’s the first nuggets of the gold rush. Yet, the market barely nudged.
Why was that? Well, it's what wasn't in the press release: Dollar signs. We don't know what margin OGI will make on the deal because we don't have an agreed upon price. In addition, you always have to beware of the words ‘up to’ in any press release.
Organigram’s agreement binds it to supplying ‘up to’ 4500 kilograms through 2016. If THC fails to open its centres, or fails to attracts patients, that ‘up to’ figure could be zero.
Arsenault is convinced that’s not likely. “They’re already hiring, those centres are opening up.”
A casual search would indicate he’s right:
Trauma Healing Centres are indeed hiring in Edmonton right now, though there’s no website yet (that I can find anyway). Still, nobody's taking 3000 kilos of weed for a while yet.
There will be more deals like this, and each one from this point should be fiercely battled for by every licensed producer out there because forging one customer relationship at a time is a fool’s errand. Having reams of new patients handed to you every week is where it’s at.
When I talked to Arsenault, I asked him if this was the tip of the iceberg. He didn’t answer directly, but let’s just say, if you ever get a chance to play poker against him, take that chance.
His poker face is crap.
"We all know it's going to go recreational legal," says Arsenault. "When the dust settles, the people with the best product are going to capture a big part of the market."
Aside from this deal, Organigram’s differentiators are its bilingualism (good for a hard push through the Quebec market, and nearly 30% of the country’s population), and it has certified organic status, which no other company can boast. The organic thing could be a big help in getting access to doctors. Other producers claim they’re organic too because Health Canada says no pesticides can be used, but certification matters.
The stock, right now, is undervalued, as are almost all the LPs out there (the exception being Mettrum which has held well from its RTO), and a couple that appear to be near term MMPR candidates; Matica (
CSE:C.GRF,
Stock forum) and Supreme (
CSE:C.SL,
Stock Forum), for example.
The Canadian weedco marketplace is starting to become a place where real companies do business and, for mine, the rising tide of Organigram just lifted all boats.
Full disclosure: I invested in the last Organigram financing and still hold that investment. They’re also a Stockhouse marketing client, and I’ve also consulted with them on marketing strategy, so it’s safe to say I like OGI. You should be aware of that and take it into consideration before you make any purchasing decision based on this story, but you should also understand those three things happened because I believe the company is doing all the right things.
Read more at CEO.CA:
Licensed organic grower vies for Canada’s pot prize.
--Chris Parry
https://www.twitter.com/chrisparry