Organigram Stock Looks Tempting at This Level

Organigram Holdings Inc. (TSX:OGI), one of the Canadian marijuana stocks, is advantageously positioned to benefit from the Cannabis 2.0 legalization

SmallCapPower | September 3, 2019: Organigram Holdings Inc. (TSX:OGI) (NASDAQ:OGI), one of the Canadian cannabis stocks, is a licensed producer of cannabis and cannabis-derived products in Canada for recreational and medical markets. The Company’s diverse brand portfolio includes The Edison Cannabis Company, Ankr Organics, Trailer Park Buds and Trailblazer. Organigram is completing Phase 4 of the expansion of its Moncton Campus that currently has an annual licensed production capacity of 61,000kg. OGI is also going to repurpose 56,000 sq.ft within its existing Moncton Campus for an edibles and derivative production facility and additional extraction capacity under EU GMP standards. The primary construction of the edible facility is expected to be completed October 2019 at an estimated CAPEX of $48M. Organigram is one of four Canadian licensed producers to have distribution agreements in all 10 provinces. Additionally, the Company has international partners, which include Alpha-cannabis based in Germany and Eviana Health Corp based in Serbia.

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Figure 1: Overview of Organigram’s Operations

Source: MD&A

Figure 2: Layout of Organigram’s Operations

Source: Investor Presentation

OGI has a multi-year extraction agreement with Valens GroWorks and an exclusive agreement with The Green Solution. The Green Solution is a U.S.-based consulting service that does product processing and developing. The Company’s agreement with Valens GroWorks will allow Valens to extract cannabis flowers and trim from Organigram’s Moncton operation to create extract concentrate. Organigram will then produce oil and, when legal, derivative edibles and vaporizable cannabis products.

Organigram has invested in biosynthesis, a disruptive technology that may potentially produce a scalable supply of cannabinoids at a lower price when compared to traditional cultivation costs. On September 13, 2019, the Company invested in Hyasynth Biologicals Inc., a biotechnology company based in Montreal, in the amount of $10M. Hysaynth has developed a biosynthesis technology that naturally produces cannabinoids without needing to grow cannabis plants. Through this process, Hysasynth has already made patent-pending enzymes that prohibit the production of CBG, CBD and THC.

Organigram also has proprietary nano-emulsification technology that has been developed based on analytical testing to create products that have an initial onset of 10-15 minutes. The technology creates shelf-stable, thermally-stable, water-soluble and palatable cannabinoid nano-emulsion formulation that prohibits the production of both liquid and powdered-beverage products. Currently, the Company is planning on launching dried powdered formulation beverage products in Canada early in 2020.

Organigram is advantageously positioned to benefit from the Cannabis 2.0 legalization. The Company has made a $15M investment commitment for a high-speed, fully-automated production line that is expected to have a capacity of up to 4M kg of chocolate cannabis edibles annually. OGI has partnered with Canada’s Smartest Kitchen to help develop premium chocolate products and grow its edibles research and development. Organigram is planning to start selling chocolate edibles in the beginning of the 2020. Additionally, the Company has been chosen as one of four Canadian partners of PAX Era, a premium oil vaporizer, designed by PAX Labs. OGI was also chosen as the exclusive supplier of Feather Company’s design-patented vaporizer and hardware technology. The current launch date for a variety of vaporizer pens by the Company is December 2019.

Figure 3: Organigram’s PAX Era and Feather Products

Source: Investor Presentation

Financial Overview of Q3/19

During the quarter, Organigram completed the conversion and settlement of its previously-outstanding 6% convertible unsecured debentures, which are due on January 31, 2020. The Company also closed its senior secured $140M credit facility with the Bank of Montreal.

OGI reported an adjusted EBITDA of $7.7M, which represents its fourth consecutive quarter of having a positive-adjusted EBITDA. During the quarter, Organigram announced having $87.8 M in cash and short-term investments. Throughout the quarter, the Company generated net revenue of $24.8M, which is a QoQ decrease of 7.8%. Revenue was generated from the sale of 3,926 kg of dried flower and 5,090L of oil. During the quarter, Organigram had all-in-costs of cultivation of $0.95 and $1.29 per gram of dried flower harvested. These have increased respectively from $0.65 and $0.95 per gram when compared to Q2/19.

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