Note: This article includes non IFRS measures, including cultivation costs per gram, and adjusted EBITDA. See the Company's latest MD&A.
The buzz around the Canadian cannabis industry is on what’s to come. Almost a year after nationwide legalization, everyone is now increasingly focused on changes upcoming in the next few months, and who will be ready for them. For one of Canada’s most efficiently run cannabis producers, quarterly results show it is strongly positioned to be a major player.
Organigram Holdings Inc. (V.OGI, NASDQ: OGI, Forum) released its financial results for the third fiscal quarter of 2019 ended May 31, 2019. The New Brunswick based cannabis licensed producer reported net revenue of $24.8 million in Q3 alongside a net loss of $10.2 million and a positive adjusted EBIDTA of $7.7 million or 31%.
Organigram’s CEO, Greg Engel, commented on the Q3 results:
“We continued to report strong sales in our third quarter and now have distribution in all ten provinces. In our fiscal year to date, we have generated strong operating and financial results, placing us among the leaders in the Canadian industry. While we saw a temporary reduction in yield per plant in Q3 due to temporary changes in growing protocols, not only have our yields returned to historical levels, but we have seen a meaningful increase in average cannabinoid levels in harvests to date in Q4.”
Despite recording a net loss for the quarter, Organigram’s progress outlined that the producer has stayed on-track for the next wave of cannabis legalization, Cannabis 2.0. Last week, Stockhouse covered the Company’s well thought-out expansion plans in cultivation, edibles and vape pen production.
CEO Engel explained that a big part of the operating loss was due to failed cloning of cannabis plants that would have sped up growth, which increased Organigram’s industry-leading low cultivation costs from $0.65 per gram to $0.95 per gram. Still, the Company posted a positive adjusted EBIDTA for a fourth straight quarter.
(Image via Organigram. Click image to enlarge)
The Canadian cannabis market also factored into the quarter results, with Organigram’s $24.8 million in Q3 revenues coming in at $2.1 million less compared to the previous quarter. While there was sales growth from the expanding markets in Alberta and Atlantic Canada, they were offset by decreased reorders from Ontario and British Columbia, markets which are still in the process of rolling out new stores.
When you put the whole picture together, it becomes clear why investors believe in Organigram to capitalize and improve on its position in the coming months. For one, the cloning setback in the quarter was quickly addressed by the Company and fixed ahead of the next quarter, and the market is forecasted to grow as new cannabis retailers are continuously opening across the country.
More importantly, the market right now is focused on who is best prepared to take advantage of the upcoming legalization of additional cannabis products. Organigram’s quarterly report included an update that its expansion remains on track to be completed by the end of calendar 2019 for target production capacity of 113,000 kg/year, once fully licensed and operational.1
The Company also invested heavily in the production of vape pen products and cannabis-infused edibles, the two largest product forms in US cannabis sales, and expects to have some products ready for sale when the regulations permit their sale. The government’s new regulations allowing sales of edibles and derivative products is set to come into effect on Oct. 17, 2019, with stores being able to legally sell those products starting in mid-December.
Investors know that smart preparation and disciplined spending are key for a company’s long-term success. Many in the cannabis space are scrambling to prepare for the market’s evolution over the next year and overspending in turn, putting themselves in stark contrast with Organigram’s solid strategy and growth trajectory.
As CEO Engel told BNN Bloomberg in an interview following the quarterly results, Organigram is still focused on doing what it does best and is in the perfect position for what’s to come.
(Video courtesy of BNN Bloomberg. Click image to play video)
1 Several factors can cause actual capacity to differ from estimates. See “Risks and Uncertainties” in most recent MD&A
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.