Organigram Shares Plunge As Revenues Fall

Organigram Holdings Inc. (NASDAQ: OGI) shares were falling over 9% in early trading after the company reported that its revenue fell in the second fiscal quarter of 2021 and then et losses ballooned. Organigram reported revenue for the second quarter ending February 28, 2021, fell 29% to $19.2 million from last year’s $27.3 million for the same time period.  The company attributed it to significantly lower wholesale revenue and lower average selling prices. The company said that last year’s better revenue was due to higher wholesale revenues that were opportunistic in nature and primarily to a single licensed producer.

The company went on to say that the net revenue was also lower due to missed sales opportunities, as certain employees tested positive for COVID-19 which resulted in a significant number of facility staff having to isolate. Organigram said it was unable to fulfill certain demands for its products totaling approximately $7 million in the quarter due to production and processing constraints. The revenue was also negatively impacted by certain provincial boards aiming to manage lower levels of inventory such as Alberta.

The net losses grew by 872% to $66 million from last year’s net loss of $6.8 million. The company said this was largely due to the negative change in the fair value of the derivative warrant liabilities and the negative gross margin in the second quarter.

“Although Q2 2021 results were challenged by industry dynamics, COVID-19 and staffing limitations at our facility, we believe there are excellent prospects ahead for the industry, Organigram and our shareholders,” said Greg Engel, Chief Executive Officer of Organigram. “Nearer term, we are currently tracking to generate higher revenue in Q3 2021 as our new product portfolio continues to gain traction and we become better staffed to fulfill demand. Our recent acquisition of The Edibles and Infusions Corporation positions us to generate revenue from the largest single category of edibles, soft chews or gummies. We also see the potential for meaningful gross margin improvement over time as we revitalize our dried flower portfolio with new Edison and Indi strains and execute on a number of opportunities including the refinement of our cultivation, post-harvesting and packaging processes. Longer-term, we are extremely excited about developing innovative and appealing products to consumers in collaboration with BAT. All of this is made possible and supported by strong liquidity and a balance sheet that is largely debt-free.”

Balance Sheet Solid

Even though it was a fairly disappointing quarter, Organigram still make moves to stabilize its finances. It repaid all outstanding balances (approximately $58.5 million) under its credit agreement with BMO and a syndicate of lenders which will result in annual interest savings of $2.7 million. Currently, it has $232 million in cash and short-term investments.

Looking Ahead

Despite the less than stellar second quarter, Organigram said it expects third-quarter revenue to be higher as the company is improving demand fulfillment with increased staffing. The company’s Moncton facility was shut down during the quarter for deep cleaning due to COVID which caused the company to lose production time in order to fulfill demand.  While COVID could still rear its ugly head, the company is hoping to catch back up from the lost time. It also gave itself some wiggle room by warning that pandemic restrictions for cannabis retail stores, particularly in the most populous province of Ontario, could suppress demand and negatively impact net revenue in the third quarter.

The company expects to generate more revenue growth from the production of soft chews and other confectionery products with the specialized equipment in the Winnipeg EIC facility. Organigram said it is targeting first sales of soft chews in the fourth quarter of 2021 subject to certain achievements, including, but not limited to, the timing of receipt and commissioning of certain ancillary equipment, completion of quality assurance documentation, the hiring of requisite staff and obtaining product listings from the provincial boards.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor 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 Master's degree in Business Journalism from New York University.

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