Organigram Shares Plunge On New $60 Million Offering

Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), the parent company of Organigram Inc. announced an underwritten public offering of units of the company led by Canaccord Genuity Corp. who has agreed to purchase 32,500,000 Units from Organigram at a price of C$1.85 per Unit, for total gross proceeds of C$60,125,000. The company said it expects to use the net proceeds from the Offering to repay indebtedness and for working capital and other general corporate purposes. In addition, the company has granted the underwriters a 30-day option to purchase up to an additional 15% of the Units.

The shares were dropping over 15% in early trading to sell at $1.35, far from its year high of $3.64. The company last released earnings in July 2020 for the quarter that ended in May 2020. No date has been announced for the next earnings release.

In the company’s July MD&A it noted that it had a Bank of Montreal senior secured term loan maturing May 31, 2022 with principal repayments starting November 30, 2020
based on a 10 year amortization. s. The proceeds of the Term Loan were being used to fund the Phase 4 and 5 expansions of the Moncton campus and were also used to refinance the company’s long-term debt with Farm Credit Canada. Organigram has amended the loan twice. The MD&A stated, “The Facilities contain customary financial and restrictive covenants. At May 31, 2020, the Company was in compliance with these covenants. Subsequent to the quarter-end, on June 22, 2020, the Company drew the remaining balance of its Term Loan of $30,000 resulting in an aggregate amount outstanding of $115,000.” In April, the company had said it wasn’t in compliance with those covenants.

Falling Revenues

In July, Organigram blamed that quarter’s falling revenues on customers wanted value products.  “Lower flower sales volumes and a lower average net selling price driven by increased competition and as the large format dried flower value segment of the recreational market grew in Q3 2020 while there was a delay launching Organigram’s large-format value product due in part to a reduced workforce from COVID-19 and earlier delays in packaging material and equipment. Fickle customer preferences resulted in returns and price adjustments on the slow-moving aged products to the tune of $3.0 million was recognized during the third quarter. Write-offs of excess and unsaleable inventories of $19.3 million, of which $11.9 million was related to excess trim and concentrate.”

In April, the company blamed falling revenues on the decline to lower recreational flower and oil sales volumes compared to the second quarter in 2019 when there were large pipeline fill orders to Alberta and Ontario. “That occurred when there were supply shortages following the legalization of adult-use recreational cannabis sales. Other reasons for the revenue decline were lower average net selling prices from the increased competition and “evolving consumer preferences, for which a provision for returns and price adjustments was recorded in Q2 2020, mostly related to cannabis oil.” Organigram did note that the decreases were partially offset by the launch of Rec 2.0 products (vape products and cannabis-infused chocolates), and higher medical revenues as well as wholesale and international revenues, which had not occurred in the prior comparative quarter.”

 

 

 

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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