Organigram Archives - Green Market Report

Debra BorchardtApril 12, 2022
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Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI) delivered its results for the second fiscal quarter ended February 28, 2022. Organigram reported that its net revenue increased 117% to $31.8 million, from $14.6 million for the same time period in 2021. The company attributed the increase to growth in adult-use recreational revenue and international revenue, partly offset by a lower average net selling price due to product mix and a decrease in medical revenue. The company trimmed its net losses to $4 million versus last year’s net loss of $66.4 million. The drop in the net loss was primarily due to the higher sales and gross margins in the current quarter.

“The culture of innovation and consumer focus we are building at Organigram has enabled us to not only create brands that are embraced by consumers, but continually innovate within those brands and across multiple product lines. We expect that leveraging these brands will allow us to continue to drive market share,” said Beena Goldenberg, Chief Executive Officer. “In addition to our continued success at building beloved brands, our ability to increase sales in international markets and capitalize on our accretive acquisitions, such as Laurentian and EIC, continue to contribute to our solid gains in market presence and sales growth.”

Revenue Growth Expected

Organigram said it currently expects revenue to be higher in the third fiscal quarter. The company said in a statement, “This expectation is largely due to ongoing sales momentum, stronger forecasted market growth, the company’s expanded product line in multiple segments, greater capacity to meet demand at the Moncton Campus, increased throughput at the Winnipeg facility and the Laurentian acquisition.”

Organigram said it also expects to realize additional revenue through the recent acquisition of Laurentian and will make growth-focused capital expenditures at Laurentian which have the potential to further increase EBITDA generation. Since the acquisition, Organigram has accelerated the distribution and sale of Tremblant Cannabis, its flagship hash brand in Ontario, increasing distribution from 25% to 40% of retail stores and growing quarterly sales by 21% compared to Laurentian’s sales in the three months ended November 30, 2022. By leveraging Organigram’s industry-leading national distribution and field sales network, Laurentian products will be available in all Canadian provinces in Fiscal 2022.

No Cash Problems

Organigram reported that the net cash used in operating activities for the quarter was $5.3 million and that this was primarily driven by the increase in inventories. In 2021, the fiscal second-quarter net cash used in operating activities was $10.4 million, which was primarily driven by the loss from operations. As of February 28, 2022, the company said it had unrestricted cash and short-term investments balance of $151 million compared to $184 million on August 31, 2021.

“We are also progressing well with the Laurentian integration. In less than three months we have been able to significantly increase distribution and begin to implement the synergies planned at the acquisition. Automation to optimize production is also underway and expected to be complete by the end of Fiscal 2022,” added Goldenberg.


Debra BorchardtJanuary 11, 2022
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Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI) delivered its results for the first fiscal quarter ending November 30, 2021, with revenue increasing 57% to $30.4 million, from $19.3 million for the same time period last year. This beat the Yahoo Finance average analyst estimate for revenue of just $23.9 million.

Organigram said the increase was primarily due to an increase in adult-use recreational revenue and international revenue, partly offset by lower average selling price due to product mix and a decrease in medical revenue. Organigram also trimmed its net loss to $1.3 million, versus last year’s net loss of $34.3 million. The company attributed it to the higher gross margin in the current quarter along with fair value adjustments on biological assets and inventories sold.

“Our record-breaking results in the first quarter of Fiscal 2022 are a testament to our successful strategy to create innovative, high-quality products that align with the evolving preferences of the various segments of cannabis consumers,” said Beena Goldenberg. “Our positive outlook for 2022 is further bolstered by the addition of Laurentian’s premium products to our portfolio, with an increased presence in Quebec and the resumption of international sales, which will continue through the year.”

In December, Organigram bought the Quebec-based Laurentian, a producer that specializes in high-quality, artisanal craft cannabis and premium Afghan hash. The acquisition accelerates and strengthens Organigram’s presence in the Quebec market and expands the company’s product portfolio. The company said it will invest at least $7 million in Laurentian to drive cultivation growth, expand processing and storage space and invest in automation. Organigram will use its direct sales team and national distribution to bring Laurentian’s products to additional Canadian provinces.

“We are also pleased with our continued progress at improving economies of scale in our operations, thus reducing operating costs and driving significant improvements in adjusted gross margin and adjusted EBITDA,” added Goldenberg. “While we previously projected to achieve positive adjusted EBITDA in Q4, with the purchase of Laurentian that will be accelerated to Q3 Fiscal 2022.”

Outlook

Looking ahead, Organigram said it expects the fiscal second-quarter revenue to be significantly higher than last year. The company said it is basing this forecast on stronger forecasted market growth and the increasing number of retail stores. In addition to that, Organigram said it is better able to fulfill the demand for its revitalized product portfolio with increased production, and revenue contributions from its newly acquired Laurentian facility. Net revenue growth is expected as the company’s adult-use recreational retail market share jumped from 4.4% in Q1 of Fiscal 2021 to 7.5% in Q1 of Fiscal 2022.

Organigram said it also expects to be positioned to generate more revenue growth from the production of soft chews and other edible products with the specialized equipment in the Winnipeg Facility under the direction of EIC leadership, who bring significant expertise in confectionery manufacturing. In Fiscal 2022, line extensions will be introduced to the company’s popular SHRED’EMS gummy and Edison Jolt lozenge SKUs.

The company also expects to realize additional revenue through the recent acquisition of Laurentian. Over the last two months of calendar 2021, Laurentian has been averaging an annual net revenue run rate of $17 million and an annual EBITDA run rate of $6 million. The Company will make growth capital expenditures at Laurentian which have the potential to further increase EBITDA generation. Laurentian’s hash and artisanal craft cannabis products complement the Company’s product line and will benefit from the company’s direct sales team and national distribution.

In addition, the resumption of shipments to Canndoc in Israel is expected to generate higher sequential revenue in Fiscal 2022 as compared to Fiscal 2021. The company believes it is better equipped to fulfill demand in Fiscal 2022 with larger harvests expected as compared to Fiscal 2021. Revenues in Fiscal 2022 to date including a shipment to Canndoc that was in excess of $3.0 million, and purchase orders received from customers, support the company’s expectation of revenue growth from Fiscal 2021 to Fiscal 2022.

 

 


Debra BorchardtDecember 21, 2021
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Organigram Holdings Inc. (NASDAQ: OGI) is buying Laurentian Organic Inc. for C$36 million, plus earnouts. The Laurentian acquisition further strengthens Organigram’s position in the Canadian market through the expansion of the company’s portfolio into premium products, including hash and craft cannabis, in addition to providing an important presence in the province of Quebec through scalable cultivation and operational footprint.

Laurentian is one of the leading hash companies in Quebec and has the current capacity to cultivate approximately 600 kg of flower and one million units of hash annually. The company said that expansion efforts are expected to increase that to approximately 3,000 kg of flower and two million units of hash by the second half of 2022. Laurentian is also expected to benefit from access to additional high-quality indoor flower supply and input material for hash from Organigram’s Moncton facility, which is expected to produce 70,000 kg of annualized production capacity by the end of fiscal 2022.

Over the last 2 months, Laurentian said it has been averaging an annual gross and net revenue run rate of $22 million and $17 million respectively, and an annual EBITDA run rate of $6 million based on its presence in Quebec, Manitoba, Saskatchewan, and most recently, Canada’s largest province, Ontario. Leveraging Organigram’s direct sales team and national distribution, Laurentian’s products will gain access to major markets currently not penetrated, including BC, Alberta and Atlantic Canada. Between local expansion planned at Laurentian’s site, synergies expected to be realized with Organigram and entrance/scale-up into new/existing markets the Company is forecasting revenues from the Laurentian and Tremblant brands to grow beyond the Company’s Fiscal 2022 year-end of August 31, 2022.

“The Laurentian acquisition marks yet another important milestone for Organigram as we continue to deepen the focus of our core business on delighting consumers with innovative products and brands that deliver unique and memorable experiences,” said Beena Goldenberg, Chief Executive Officer of Organigram. “Not only does Laurentian add two great new brands to our portfolio, it also brings us new premium product offerings with its Afghan hash and artisanal craft flower, as well as a footprint in the important market of Quebec. We look forward to building on the momentum that Laurentian has established to bring these products to even more Canadian provinces and territories.”

Laurentian was co-founded by Eric Brosseau, Mathieu Lahaie and Eric Verdier, a trio of highly passionate Quebecers who parlayed their love of cannabis into a successful cannabis company operating near the iconic Mont-Tremblant, specializing in high-quality, artisanal craft cannabis and premium Afghan hash. The hash category in Canada is increasing in importance and leveraging Organigram’s national sales and distribution network, the company believes that Laurentian’s product offerings will continue to grow nationwide at an accelerated pace, bringing Laurentian’s high-quality craft cannabis products to more consumers.

“We founded Laurentian with the goal of bringing the highest quality hash and cannabis to consumers across Canada. We are thrilled to be joining Organigram where we will have the opportunity to leverage their expertise and distribution capabilities to make this expansion goal a reality,” said Eric Brosseau, Co-Founder of Laurentian. “The Organigram team has an unrivaled customer service experience through its rigor and professional standards and dedicated national sales force and we are thrilled to be able to work with their team through the next phase of growth.”


Debra BorchardtNovember 23, 2021
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Organigram Holdings Inc. (NASDAQ: OGI) reported its results for the fiscal fourth-quarter ending August 31, 2021, with revenue increasing 22% to $24.9 million, from $20.4 million in the same time period for 2020. Organigram said the increase was primarily due to an increase in adult-use recreational revenue, partly offset by the decrease in international revenue, medical revenue, wholesale revenue to other Licensed Producers, and a lower average net selling price. The stock was jumping over 10% in early trading on the results and was lately selling at $2.06.

The company also reported a net loss of $26.0 million, which was an improvement over last year’s net loss of $38.6 million. the company said this was largely due to the higher gross margin in the quarter which was partially offset by the impairment charges during the current quarter. The quarter also reported that the negative adjusted EBITDA decreased 48% from $9.2 million in the third fiscal quarter to $4.8 million. This improvement was primarily attributed to the increase in revenues and the improved adjusted gross margin.

“The results in Q4 Fiscal 2021 demonstrate the momentum we have achieved from our efforts to lead innovation and increase efficiencies. In the quarter, we introduced exciting new products that were embraced by consumers and we achieved higher crop yields at a lower cost” said Beena Goldenberg, Chief Executive Officer. “We are particularly pleased with our market share gains in the quarter to become a #4 LP and will build on these successes into Fiscal 2022.”

Looking Ahead

Organigram said it is forecasting its fiscal first quarter of 2022 revenue to be higher than the fourth quarter and attributed this to stronger forecasted market growth as COVID-19 restrictions continue to lift and the number of retail stores continues to grow; and the company is better able to fulfill the demand for its revitalized product portfolio with its increased production.

“Net revenue growth is expected from the company’s products as evidenced by Organigram’s growing national adult-use recreational retail market share (“market share”) from 5.4% in Q3 to 7% in Q4. As of October, the momentum continues and the company has reached a 7.9% share of market, maintaining its position as the #4 LP in Canada.”

“In addition, the resumption of shipments to Canndoc in Israel is expected to generate higher sequential revenue in Q1 Fiscal 2022 as compared to Q4 Fiscal 2021. The Company believes it is better equipped to fulfill demand in Q1 Fiscal 2022 with larger harvests expected as compared to Q4 Fiscal 2021. Revenues to date in Q1 Fiscal 2022 including a shipment to Canndoc that was in excess of $3.0 million, and purchase orders received from customers, support the Company’s expectation of revenue growth from Q4 Fiscal 2021 to Q1 Fiscal 2022; however actual results could vary from estimates from the date hereof until year-end.”

Organigram also expects to be positioned to generate more revenue growth from the production of soft chews and other edible products with the specialized equipment in the Winnipeg Facility under the direction of EIC leadership, who bring significant expertise in confectionery manufacturing.

Ms. Goldenberg concluded, “We are excited for what Fiscal 2022 holds for Organigram. Looking ahead, we expect to continue our momentum as we maintain our focus on increased points of distribution, bringing new, impactful, and innovative products such as Edison Jolts, SHRED, and SHRED’ems to market, and improve our ability to fulfill the growing demand for our products.”


Debra BorchardtJuly 13, 2021
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Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI) released its results for the third quarter ending May 31, 2021, with revenue growing 31% over last year to $29.1 million. This was an increase of 51% from the second quarter. The net loss fell 96% to just $4 million from last year’s $89 million. The stock was trading higher by 6%  in early trading and was lately selling at $2.83.

Organigram attributed the increase in revenue to higher adult-use recreational net revenue and higher wholesale revenue (from other licensed producers) in the quarter. Last year’s third quarter adult-use recreational net revenue was reduced by a provision for product returns and pricing adjustments of $3.0 million (net of excise) of which the majority was largely due to slow-moving oil and certain flower products.

“We are pleased with the growth in revenue in Q3 as we were better staffed to fulfill the demand for our revitalized product portfolio, which continues to resonate well with consumers,” said Paolo De Luca, Chief Strategy Officer. “The ongoing investment in our genetics and cultivation program has yielded some exciting new dried flower products with more genetics and derivative product launches planned for the near term. Sales are trending higher to date in Q4 supported by a strong outlook for the industry as the number of cannabis retail stores continues to grow and existing stores are permitted to re-open their doors to customers.”

The cost of sales decreased from last year and this was primarily due to almost $30.0 million in inventory write-offs and provisions as well as charges related to a reduced workforce due to COVID-19 which were all incurred in the third quarter of 2020. SG&A increased over last year and Organigram said this was largely due to increased staffing and office costs related to the establishment of the CoE as well as the EIC acquisition, higher cultivation related research and development costs as well as higher audit fees (in connection with the company’s regulatory requirement to obtain an integrated audit opinion for the first time for its Fiscal 2021 annual financial statements).

Outlook

Organigram said it currently expects fourth-quarter 2021 revenue to be higher than the third quarter largely due to stronger forecasted market growth as COVID-19 restrictions lift (permitting cannabis retail stores to reopen to foot traffic) and the number of retail stores continuing to grow.  The company said it is better able to fulfill the demand for its revitalized product portfolio with increased staffing. In a statement, the company said,  “Revenues to date and purchase orders received from customers support the company’s expectation of revenue growth from Q3 2021 to Q4 2021; however actual results could vary from estimates from the date hereof until year-end. In addition, the company expects to generate a new and incremental revenue stream from the first sales of soft chews expected in Q4 2021.”

Solid Financials

On April 1, 2021, Organigram 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, the company has $222 million in cash and short-term investments (including restricted funds). Organigram believes it has sufficient cash and short-term investments to support its current plans, including the budget of $38 million for the completion of Phase 4C and the Moncton Campus design improvements, and to also support the corresponding growth to its working capital assets and still maintain sufficient liquidity and financial flexibility.


Debra BorchardtJune 25, 2021
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Organigram Holdings Inc. (TSX: OGI) (NASDAQ: OGI) announced after the market close on Thursday that it has filed a preliminary short form base shelf prospectus with the securities commissions in each of the provinces and territories of Canada. The Base Shelf Prospectus will allow Organigram to qualify the distribution of up to C$500 million of common shares, preferred shares, debt securities, subscription receipts, warrants, and units during the 25-month period that the Base Shelf Prospectus remains effective. Shares were falling slightly in early trading.

In May, Organigram announced that Greg Engel was stepping away from his role as CEO and director. Peter Amirault, current Board chairman, was appointed by the Board to serve as executive chair on an interim basis until a new permanent CEO was appointed.

In April, Organigram said it had repaid all outstanding balances (approximately $58.5 million) under its credit agreement with BMO and a syndicate of lenders which would result in annual interest savings of $2.7 million. At that time it had $232 million in cash and short-term investments.

The specific terms of any future offering of securities will ‎be established in a prospectus supplement filed with the applicable Canadian and US regulatory authorities. The Base Shelf Prospectus when final and effective will provide flexibility for financing options to pursue the company’s objectives. A corresponding shelf registration statement on Form F-10 has been filed with the United States Securities and Exchange Commission but is not yet effective.

In April, 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.


Debra BorchardtApril 13, 2021
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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 BorchardtApril 6, 2021
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Organigram Holdings Inc. (NASDAQ: OGI) has acquired The Edibles & Infusions Corporation in a deal valued at $35 million consisting of $22.0 million, plus up to an additional $13.0 million in shares (payable upon the EIC business achieving certain earnout milestones. Organigram said that the EIC Acquisition will expand its product offerings and provide an operational footprint in Western Canada.

The edibles category currently represents approximately 4.4% of the Canadian recreational cannabis market of which soft chews (and related formats) collectively are approximately 75%. This is a rapidly growing segment of the overall Canadian market and Organigram said it expects the Canadian market to gradually grow towards the 12%-15% and 85% edible and soft chew (and related formats) category share seen in the U.S. as new product offerings are introduced, and as regulatory changes unfold.

“EIC is an important acquisition to ensure Organigram is consistently at the forefront of cannabis product development. The integration of EIC will continue to provide our consumers access to innovative cannabis products while leveraging Organigram’s national sales and distribution network,” said Greg Engel, Chief Executive Officer of Organigram. “Edible products remain an important product category to Organigram and EIC represents an ideal partner with which to expand our market presence in this category as well as other derivative cannabis categories. EIC’s commitment to research and development, continuous innovation, and its confectionery market leadership strategically aligns with Organigram’s domestic and international strategy. We value James Fletcher’s tremendous knowledge of confectionary manufacturing and proven track record of fulfilling the product needs of some of the world’s largest retailers at Cavalier Candies.”

EIC

EIC was co-founded by AgraFlora Organics International Inc. (CSE: AGRA) and James Fletcher, who is the Chief Executive Officer of Cavalier Candies – one of Canada’s oldest confectionery companies. EIC constructed a purpose-built, highly-automated, 51,000-square-foot manufacturing facility located in Winnipeg, Manitoba. The facility employs state-of-the-art equipment designed to produce highly customizable, precise, and scalable cannabis-infused products, including edibles. EIC currently holds a Research License and a Standard Processing License issued under the Cannabis Act and regulations; it is in the process of completing its application to add the activity of the sale of Cannabis 2.0 products to its Standard Processing License. Until EIC receives its Sales License, it is capable of manufacturing products in bulk for further processing, review, and sale by Organigram or third-party licensed producers, for which it may provide white-label services.

The company said it currently expects first sales of EIC manufactured soft chews in Q4 Fiscal 2021 subject to the timing of receipt and commissioning of certain ancillary equipment, completion of quality assurance documentation, and hiring of requisite staff.

“This acquisition, on the heels of the recently completed BAT transaction, provides strong strategic synergies for Organigram’s vision of developing innovative and novel products to serve the Canadian market and beyond,” said Paolo De Luca, Organigram’s Chief Strategic Officer. “Diversifying our manufacturing and R&D base gives us increased ability to fast-track our near-term commercial plans as well as expand our R&D efforts in addition to those already destined for the Centre of Excellence in connection with BAT.”

“Organigram and EIC have enjoyed a collaborative partnership in working towards the closing of this transaction. Working with Organigram, we believe EIC can realize its full potential. Combining our complementary management expertise and business strengths will result in an integrated entity that is poised for further growth in Canada as well as globally in an expanding market for cannabinoid-infused products,” commented James Fletcher, President of EIC. “Our facility at EIC was designed to handle both smaller-batch artisanal manufacturing but, more importantly, large-scale nutraceutical-grade high-efficiency manufacturing with a view to gaining EU GMP certification as well. Indeed, the facility design and all of the equipment specifications were completed with that in mind.”


Debra BorchardtMarch 11, 2021
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The cannabis industry’s fear of big tobacco trying to elbow into the industry has finally come true with today’s announcement of a $175 million investment into Organigram Holdings Inc. (NASDAQ: OGI) from a wholly-owned subsidiary of British American Tobacco or BAT (NYSE: BTI). The BAT subsidiary has subscribed for approximately 58.3 million common shares of OGI, which represents a 19.9% equity interest on a post-transaction basis for total proceeds of approximately C$221 million (“Investment Proceeds”) at a price per share of C$3.792.

Big Tobacco has had to keep its distance from cannabis due to the restrictions and regulations for that industry. Cannabis remains a federally illegal product. However, the cannabis industry has always feared that as soon as legality occurred, big tobacco would try to take over. While BAT isn’t stepping into the THC portion of the business, it is dipping its toes in the legal CBD side.

“This is a tremendous milestone in the evolution of Organigram. It is instrumental in advancing our commitment to offering consumers innovative cannabis products and to furthering our long-term international strategy,” said Greg Engel, Chief Executive Officer of Organigram. “We have been extremely selective about aligning with a strategic partner and, in BAT, we’ve found a leading consumer goods business with sophisticated management, innovative product platforms, an impressive dedication to research and development, deep consumer insights, regulatory expertise and a commitment to responsible stewardship and consumer safety among many other enviable attributes. This collaboration is the culmination of extensive discussions and workshops and in-depth due diligence.”

A Balance Sheet Decision

BAT’s investment is expected to strengthen Organigram’s balance sheet, accelerate its R&D program and product development activities and bolster its ability to enter the U.S. and other international markets. In January, Organigram  released its results for the first-quarter ending in November causing the stock to tumble. A shift to value products hurt the company, which also warned that the second-quarter revenue could be impacted as well. The company delivered net revenue of $19.3 million for the first fiscal quarter of 2021 versus last year’s $25.2 million, which the company blamed on significantly lower wholesale revenue from licensed producers and a lower average selling price in the quarter.

Organigram also told investors that a negative non-cash adjustment to cost of sales for unabsorbed fixed overhead costs in Q2 Fiscal 2021 was anticipated to persist as a result of the company’s plans to cultivate less than its cultivation capacity. “Some production inefficiencies are anticipated to persist in the near to medium term and impact gross margins while Organigram continues to launch new products and optimizes production and staffing.”

“In our view, the cannabis industry is still in the nascent stages of product development. We believe that product innovation backed by core fundamental R&D is necessary to establish a long-term competitive advantage in the cannabis industry,” stated Paolo De Luca, the Company’s Chief Strategic Officer.

The company acknowledged that with the significant capital injection, Organigram is better positioned to expand into the U.S. and further international markets at the appropriate time and subject to applicable law. Upon closing, Organigram will have pro-forma cash and short-term investments of approximately C$296 million (of which approximately C$30 million will be reserved in order to satisfy certain of Organigram’s obligations under the PDC Agreement and the balance of which can be used, among other things, for growth opportunities and other strategic investments including advancing Organigram’s international strategy).

Tobacco Use Declining

According to the World Health Organization, “During nearly the past two decades, overall global tobacco use has fallen, from 1.397 billion in 2000 to 1.337 billion in 2018, or by approximately 60 million people, according to the WHO global report on trends in the prevalence of tobacco use 2000-2025 third edition.”

The WHO also said that a new report shows that the number of male tobacco users has stopped growing and is projected to decline by more than 1 million fewer male users come  2020 (or 1.091 billion) compared to 2018 levels, and 5 million less by 2025 (1.087 billion). “By 2020, WHO projects there will be 10 million fewer tobacco users, male and female, compared to 2018, and another 27 million less by 2025, amounting to 1.299 billion. Some 60% of countries have been experiencing a decline in tobacco use since 2010.”

So, it was inevitable that big tobacco would look to replace its declining sales and cannabis was the logical choice.

Center Of Excellence

Licensed cannabis producer Organigram Inc. said it entered into a Product Development Collaboration Agreement with BAT to create a “Center of Excellence” to focus on developing the next generation of cannabis products with an initial focus on CBD. The company said the Center of Excellence will be located at Organigram’s indoor facility in Moncton, New Brunswick, which holds the Health Canada licenses required to conduct research and development activities with cannabis products.

According to the statement, both companies will contribute scientists, researchers, and product developers to the Center of Excellence which will be governed and supervised by a steering committee consisting of an equal number of senior members from both companies. Under the terms of the PDC Agreement, both Organigram and BAT have access to certain of each other’s intellectual property and, subject to certain limitations, have the right to independently, globally commercialize the products, technologies and IP created by the Center of Excellence pursuant to the PDC Agreement.

Dr. David O’Reilly, Director, Scientific Research at BAT, commented: “Today’s announcement underscores BAT’s commitment to accelerating our transformation and building A Better Tomorrow. Our multi-category, consumer-centric approach, which is key to our transformation, aims to provide choice and meet the evolving needs of adult consumers. Choice that provides reduced-risk alternatives to combustible cigarettes, as well as going beyond tobacco and nicotine into new and exciting areas of product innovation.”

 


Debra BorchardtJanuary 12, 2021
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Organigram Holdings Inc. (NASDAQ: OGI)  released its results for the first quarter ended November 30, 2020, causing the stock to tumble in early trading. A shift to value products has hurt the company, which also warned that the second-quarter revenue could be impacted as well. The stock was falling over 7% to lately sell at $1.64.

The company delivered net revenue of $19.3 million for the first fiscal quarter of 2021 versus last year’s $25.2 million, which the company blamed on significantly lower wholesale revenue from licensed producers and a lower average selling price in the quarter.

Organigram said in a statement that the higher wholesale revenues during the first quarter of 2021 were opportunistic in nature, primarily sales to a single licensed producer; and not necessarily expected to recur each quarter at those levels, or if at all. First-quarter net revenue from the Canadian adult-use recreational market grew 30% to $16.8 million from $12.9 million in the prior-year quarter largely because Rec 2.0 products were not yet legalized.

The company also delivered a first-quarter net loss of $34.3 million, or ($0.17) per share on a diluted basis, compared to the 2020 first quarter net loss of $0.9 million, or ($0.01) per share, largely due to greater negative gross margin.

“We are pleased with our double-digit sales growth in the Canadian adult-use recreational market this past quarter as it reflects the success of many of our new product launches, particularly in the dried flower value segment,” said Greg Engel, CEO. “Now we look forward to our new higher-margin Edison dried flower offerings contributing substantially to overall revenue with even more new products to come in the next few quarters. We believe our product portfolio revitalization combined with additional resources to ramp up production and achieve greater economies of scale as well as our relentless focus on increased automation and cost efficiency opportunities position us well to generate further top-line growth and significantly improve gross margins.”

Gross revenue fell 11% to $25.3 million versus $28.4 million in Q1 2020 largely due to similar factors impacting net revenue and reflected the increase in excise taxes as a percentage of gross revenue in Q1 2021. In mid-calendar 2020, Organigram began a product portfolio revitalization to address what it believed to be some of the biggest consumer trends and preferences, including demand for value in large format, higher THC potency in dried flower as well as new genetic strains and novel products.

Less Than Stellar Outlook

Organigram said that stronger than expected demand for many of its new products resulted in competing priorities for the company’s existing staffing and production levels. “This contributed to delays in product launches and hindered consistent order fulfillment, which resulted in some meaningful missed revenue opportunities in Q1 Fiscal 2021 and is expected to continue to impact Q2 Fiscal 2021. As such, management has decided to ramp up staffing. By early Q3 Fiscal 2021, the Company plans to have hired 100 more positions, mostly in cultivation, and up to an additional 30 more positions in packaging.”

The company also warned that its revenues in the second fiscal quarter could also be impacted due to COVID closures. However, the stores are still offering online and delivery services.

Organigram also told investors that a negative non-cash adjustment to cost of sales for unabsorbed fixed overhead costs in Q2 Fiscal 2021 was anticipated to persist as a result of the company’s plans to cultivate less than its cultivation capacity. “Some production inefficiencies are anticipated to persist in the near to medium term and impact gross margins while Organigram continues to launch new products and optimizes production and staffing.”

Organigram launched a number of value segment products to respond to increased demand in this area and it said the new products have been well-received by the market, particularly SHRED (currently the Company’s deepest value offering). SHRED sales drove the Company’s revenue growth in Q1 Fiscal 2021 in the Canadian adult-use recreational market over Q4 Fiscal 2020. “As such, Organigram is focused on further revitalizing its Edison mainstream brand, which attracts higher product gross margins, by launching new dried flower offerings with unique strains and higher potency THC.”


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