Organigram Financial Results a Pleasant Surprise

Organigram Holdings Inc.’s (TSXV:OGI) Q3 net revenue surged 94% YoY, while its net income increased 162%

SmallCapPower | August 1, 2018: Organigram Holdings Inc. (TSXV:OGI) Monday reported its third-quarter fiscal 2018 financial results that showed record revenues on strong sales volume as well as a positive bottom line on improved margins. Following the strong results, shares of Organigram jumped nearly 7% to close at $4.81 on the TSXV Monday, followed by a 3.5% gain on Tuesday.

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Net revenue surged 94% YoY to $3.7 million for the third quarter, driven by a four-fold jump in sales volume of cannabis oil to 768.4 liters and a 55% increase in sales volume of dried flower to 303.4 kgs. Registered medical patients rose 18% QoQ to reach 15,316. Gross profit (excluding FV adjustment) improved to $2.0 million, or 55% of sales (negative margins in the year earlier quarter), on lower all-in costs of $0.80 per gram. Adjusting bio assets and inventories, gross profit totaled $12.1 million for the quarter.

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Operating costs also increased significantly during the quarter, with both G&A and sales & marketing rising ~100% YoY. Organigram Holdings also incurred high interest expense of $3.7 million, attributable to $115 million of convertible debentures issued in January.

Owing to the factors discussed above, net income for the period surged 162% to $2.8 million, or $0.021 per diluted share, for the third quarter of fiscal 2018 compared to a net loss of $2.3 million, or ($0.023) per diluted share, during the third quarter of fiscal 2017.

Key highlights in its balance sheet included cash and short-term investments improving to $156 million at quarter end from $34 million at year end 2017 and long-term debt and convertible debentures increasing to $98 million from $3 million.

Organigram also provided several operational highlights as part of the news release. These included harvesting from its Phase 2 expansion facility (23 grow rooms) in April, bringing target production of dried flower equivalent to 22,000 kg/annum; and the launching of its adult recreational brand strategy, receiving a dealer license as well as a permit to export cannabis, both in May.

Post the third quarter, Organigram began using its Phase 3 expansion (filling six of the 16 grow rooms with the remaining rooms filled in June and July), bringing its target production of dried flower equivalent to 36,000 kg/annum. Construction on its Phase 4a (26 grow rooms) and 4b (27 grow rooms) began in the fourth quarter of fiscal 2018 with an estimated cost of $70 million, bringing target production capacity to 89,000 kg/annum. Construction on its Phase 4c (24 grow rooms) is estimated to cost $40 million, and is scheduled to begin in January 2019, bringing its target production capacity to 113,000 kg/annum.

Organigram Holdings currently trades at a market cap of $600 million, or 49x its TTM net sales of $12.2 million.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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