Organigram Stock Pummeled After Company Slashes Guidance

Organigram Holdings Inc. (NYSE: OGI) saw its stock plunged by almost 20% after the company slashed its guidance for the fiscal fourth quarter that ended in August after the market close on Monday. The stock was lately trading $2.74. The company said it will report earnings before the market opens on November 25.

Organigram said it now expects fiscal fourth-quarter net revenue of C$16.3 million or $12.3 million, a huge drop from the third quarter revenue of C$24.8 million.  FactSet had analyst estimates at C$27.9 million for the fourth quarter.

Organigram said it shipped about $20 million worth of cannabis during the quarter and blamed a lack of retail stores and slower store openings for the decline. The company said it expects to have roughly $47.9 million in cash and equivalents by the end of the quarter.

“While Q4 2019 did not meet our overall expectations, we have not only emerged as one of the national leaders in the industry with significant growth expected in net revenue and strong market share, we expect to report positive adjusted EBITDA for the year,” said Greg Engel, CEO. “And we remain relentlessly focused on running a profitable business which earns attractive returns on investment for our shareholders over the near and long term. We are encouraged by Ontario’s recent announcement to expand the retail network and believe this should be an important catalyst to drive further growth for us and the industry as a whole.”

In a company statement, Organigram said, “The lack of a sufficient retail network and slower than expected store openings in Ontario continued to impact sales in Q4 2019 and were further exacerbated by increased industry supply. The majority of the product returns and price adjustments (of about $3.7 million) was largely due to returns and price adjustments for two slower selling SKUs sold to the Ontario Cannabis Store (OCS), comprised of a bespoke order of lower THC dried flower intended to fulfill a supply gap in the market earlier this year and THC oil which has seen less than anticipated demand in the adult-use recreational market.”

“Since we were one of the first success stories following legalization, we had early visibility of product sell-through. As such, we are already well underway in aligning our strategy and production mix to emerging consumer preferences,” said Mr. Engel. “We have also piloted ‘limited time’ offers of other strains. Two, in particular, have been met with exceptional customer feedback: Edison Limelight (sativa) and Edison El Dorado (hybrid) and as such, we are incorporating these new strains into our core offerings.”

Looking to 2020

Beyond fiscal Q1 2020, Organigram said it remains on track to launch vape pens in mid-December followed by cannabis-infused chocolate products in calendar Q1 2020 and now expects its shelf-stable, water-compatible, flavorless nano-emulsion powdered beverage product in calendar Q2 2020 based on expected licensing for the production area and equipment delivery and commissioning schedules. Organigram submitted new product notifications to Health Canada for a vape pen portfolio and cannabis-infused chocolates last month.

Organigram said it expects to report about $47.9 million in cash and short-term investments and about $49.6 million in current and long-term debt, which primarily represents the carrying value of its term loan. Subsequent to Q4 2019, an additional $15.0 million was drawn on its term loan leaving about $50.0 million in the available capacity of the total term loan of $115.0 million. The company also has a revolver of up to $25.0 million available to be drawn against specified receivables. On November 4, 2019, Organigram filed a preliminary base-shelf prospectus for an amount up to $175.0 million.

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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