Organigram Holdings Inc. (OTCQX: OGRMF) reported its first fiscal 2019 quarter results with net sales for the three months ending November 30, 2018, of $12.4 million, up 419% from $2.4 million in Q1’2018. Sales rose 287% sequentially as the impact of legal adult use sales in Canada continues to be felt on the income statement.
Net income for the quarter was $29.5 million, or $0.195 per share on a diluted basis versus a net loss of $(1.2) million, or $(0.012) per share in Q1’2018. It was also a big jump sequentially from the fourth quarter net income of $18.0 million, or $0.152 per share on a diluted basis.
“The first quarter of 2019 is just the start of what we expect to be a year of tremendous growth,” said Greg Engel, Organigram’s Chief Executive Officer. “We’ve always believed the Moncton Campus would be a competitive advantage for us being able to produce high-quality indoor-grown product at a low cash cost of cultivation. Our first quarter results confirmed that as we reported an adjusted gross margin of 71%.”
The company said that the gross margin percentage, excluding fair value adjustments on biological assets, increased to a record 71% during Q1’19 compared to 25% in the prior year comparative quarter and 50% in Q4’2018. Gross margin increased to $51.7 million in Q1’2019 from $1.3 million in Q1’2018 and $32.5 million in Q4’2018. If the company excludes fair value adjustments on biological assets, these figures would be $8.8 million, $0.6 million, and $1.6 million, respectively.
“While we continue to work hard to take advantage of our enviable inventory build to drive increased sales we are already well underway preparing for the derivative and edibles launch during the fall of 2019,” added Greg.
Organigram said that fiscal 2019 sales will continue to be dominated by adult-use recreational revenue and that the second fiscal quarter will be the first full quarter of adult-use recreational sales for the company. Net revenue for the quarter is expected to be at least twice that of Q1 and currently, inventories are at $91.4 million up from $45.0 million at year-end August 31, 2018.
The company said it is also actively looking at outsourcing part of its “available for extraction” inventory balance as it represented approximately $38.0 of the $91.4 million inventory balance at quarter-end.
The earnings statement also noted that the budget for Phase 4 of the Moncton Campus expansion has increased from the original $110 estimate to $120 to $125 million due to the increased cost of steel, the timing of winter construction, and expedited timelines. Phase 4A is expected to come online in April 2019 with 31 grow rooms, 4B in August 2019 with 32 grow rooms, and 4C in the Fall of 2019 with 29 grow rooms bringing the company’s target production capacity to 62,000 kg/yr, 89,000 kg/yr, and 113,000 kg/yr, respectively. The company had spent approximately $37 million on Phase 4 by the end of Q1’19.
Last week, Organigram entered into an agreement with 1812 Hemp, a New Brunswick based industrial hemp research company to secure supply and support research and development on the genetic improvement of hemp through traditional plant breeding methods. As part of the deal, Organigram has access to approximately 6,000 kg of dried hemp flower harvested in the fall of 2018, which it intends to purchase and begin to send for extraction within the first calendar quarter of 2019.