Organigram Adjusts To Canadian Slow Roll

Canadian-based cannabis company Organigram Holdings Inc. (NASDAQ:OGI) reported that its first-quarter 2020 revenue rose by 102% over last year to $25.15 million, which beat analyst estimates by $10.24 million. Last year the company reported $12.4 million for the first quarter of 2019. The earnings per share reported by Organigram were flat, but that also beat the estimates by two cents.

Organigram delivered a net loss of $0.9 million compared to net income from continuing operations of $29.5 million last year for the same time period saying it was “largely due to non-cash fair value changes to biological assets and inventories in the prior-year quarter.”

“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter,” said Greg Engel, CEO. “Our team was also successful in shipping the first of our Rec 2.0 products as planned and on schedule in December of 2019. We also look forward to the launch of the remainder of our vape pen portfolio followed soon after by our premium cannabis-infused chocolate products. In addition to an exciting line-up of 2.0 products, we are rolling out a couple of new core strains, such as our high THC Edison Limelight, across the country following their success as limited-time-offers in smaller markets.”

The company also noted that it had $1.1 million in a provision for product returns and price adjustments. This compared to the fourth quarter 2019’s  $3.7 million in a provision for product returns and pricing adjustments. “The majority of the Q1 2020 provision was related to THC oils which have seen less than anticipated demand in the adult-use recreational market. The majority of the Q4 2019 provision was related to two slower selling stock-keeping units sold to the Ontario Cannabis Store, comprised of a bespoke order of lower THC dried flower intended to fulfill a supply gap in the market earlier in calendar 2019 and THC oils.”

Putting On The Brakes

The company also stated that it had a total target production capacity of 89,000 kilos per year, it was going forward at a more slow pace. Engel said on the company’s conference call, “We believe consumer demand in Canada continues to be suppressed by the lack of retail stores, particularly in the most populous provinces of Ontario and Quebec. We can more effectively manage cash allocation and put some of the capital to better use elsewhere. And the decision to delay completion as originally designed allows us to preserve flexibility to use portions of the 4C space for other strategic purposes. We will continue to monitor market conditions and believe we can finish foreseeing a relative short time frame should consumer demand warrant.”

Canada 2.0 Rollout

Engel also said on the call that the company’s Rec 2.0 rollout plans include three SKUs of its Trailblazer vape cartridges, and they were pleased with the response to date. “We expect to make our first shipment of our three SKUs of our Feather Edison pens as early as next week. And our PAX Edison cartridge, we expect to have out in calendar Q2. Our chocolate Edison truffle bites are expected to be in market soon as well followed by Trailblazer bars and Edison bars. And rounding out our portfolio of 2.0 products is our dissolvable powder product. Our R&D team has developed a proprietary nano-emulsification technology that is anticipated to provide an initial absorption of cannabinoids within 10 to 15 minutes.”

Capital

The company said that it has $34 million in cash and short-term investments and still has $30 million in available capacity on a term loan, which remains undrawn. CFO Paolo De Luca said, “Given our cash and short-term investments of $34 million, our $30 million of untapped committed credit facility, up to $25 million available under the revolver and a potential uncommitted $35 million under the credit facility plus the $22 million raised under the ATM, we believe we have created the necessary capital and liquidity cushion to write out any volatility in the capital markets.”

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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