Organigram (OGRMF): Strong Growth with Numerous Catalysts Ahead

Ryan Allway January 30th, 2017 News, Top News

Canada’s cannabis industry could surpass C$7 billion over the coming years, with only 38 companies licensed to produce the drug. While it’s not the largest LP in the space, Organigram Holdings Inc. (TSX-V: OGI) (OTC: OGRM) represents one of the most compelling opportunities given its strong growth and upcoming expansion initiatives. Investors may want to keep an eye on the company over the next year as these initiatives come to fruition.

In this article, we will look at why Canada’s cannabis industry is so attractive and why investors may want to consider Organigram for exposure to the space.

Canada’s Booming Industry

Health Canada once projected that the medical cannabis market would reach C$1.3 billion with 450,000 patients by 2024. With the election of Prime Minister Justin Trudeau, the market could expand a further C$6 billion by 2021 through the legalization of recreational cannabis, according to Cannacord Genuity. The country recently implemented its new ACMPR program on the medical side and recreational cannabis sales are expected to commence next year.

The rigorous process of becoming a licensed producer of cannabis has created a significant barrier to entry. Whereas Colorado has over 2,500 cannabis businesses, Canadian regulators have approved only 38 licensed producers throughout the country. Cannacord Genuity believes that this could create a shortfall of supply in the legalized market over the short-term until production capacities catch up by 2020 – an opportunity for existing LPs and investors.

Canopy Growth Corp. (TSX: CGC) (OTC: TWMJF) became the first licensed producer to achieve a market capitalization of more than $1 billion, while Aphria Inc. (TSX-V: APH) (OTC: ACBFF) and Aurora Cannabis Inc. (CSE: ACB) (OTC: ACBFF) are more than halfway there. But, investors shouldn’t discount smaller licensed producers like Organigram Holdings Inc. (TSX-V: OGI) (OTC: OGRMF) that have tremendous upside potential.

Strong Financial Performance

Organigram has seen tremendous top- and bottom-line growth alongside other licensed producers. Last quarter, the company reported revenue that increased 116% to $2,230,671 with gross margins that increased from 55% to 65% year over year. Adjusted EBITDA swung from a $62,072 loss to a $272,839 gain, while cash flow increased 1,873% to $510,015. This tremendous growth could help justify a higher multiple for its stock moving forward.

“Organigram, like many of the first movers in this emerging industry, has experienced incredible growth in our business, operating infrastructure, and within our team,” said Organigram CEO Denis Arsenault in a recent press release discussing first quarter financial results.

The company experienced a mild setback in December 2016 and January 2017 when it voluntarily recalled product, but quick communication with customers, regulators, and licensed labs resolved the issue and will prevent similar issues from reoccurring. Currently, the company is working closely with Health Canada to determine the origin of the non-permitted ingredients, while recording an inventory loss of about $500,000 thus far.

“Thanks to the prompt action of our team, the understanding and loyalty of our patients and investors, the support from our licensed testing counterparties, and the collaboration and oversight of our industry regulators, the company has been able to address these challenges and setbacks immediately and definitively,” added. Mr. Arsenault.

Greater Production & Margins

Organigram plans to grow production capacity while prudently managing its capital and preserving shareholder value. In particular, the company is pursuing on-site expansion initiatives designed to increase production capacity to 17,000 kilograms per year by early 2018. The company also recently announced that it acquired adjacent property for infused product manufacturing in collaboration with TGS International in Colorado.

“Our onsite expansion project positions Organigram to have one of the highest production levels in the industry at time when we anticipate a very significant increase in consumer demand associated with recreational legalization,” said Organigram CEO Denis Arsenault. “There are no additional licenses required, there is no additional capital required for the expansion, and we don’t have additional locations to manage… our business remains well capitalized.”

The company also added Michel Robichaud to its senior management team as Director of Edibles & Extraction, which could help bolster its efforts to move into higher margin products. As a chemist with over 20 years of senior business leadership experience, he has led international projects with companies like JD Irving and Rio Tinto. Edibles and extracts could provide higher margin revenue opportunities to boost the company’s bottom-line performance.

“Our recent land purchase and focus on this opportunity communicates a clear strategy on extract and edible manufacturing as it relates to the legalization of recreational marijuana,” said Mr. Arsenault in the press release announcing the new hire. “We’re ecstatic about Mr. Robichaud joining the team and feel it’s one more step in ensuing Organigram does the groundwork now to ensure full preparedness for the recreational marketplace.”

Mr. Robichaud’s appointment follows on the heels of the company’s product development, licensing and distribution agreement, finalized in October 2016, with TGS International. TGS International is an affiliate of The Green Solution, LLC (“TGS”), a vertically-integrated cannabis company which owns and operates over 300,000 square feet of state licensed and regulated production, processing, and manufacturing facilities as well as medicinal and/or adult-use retail locations in the state of Colorado. Taken together, these bits of news add up to an aggressive plan to address and prepare for the upcoming recreational market with a wider variety of consumer products.

Looking Ahead

Organigram Holdings Inc. (TSX-V: OGI) (OTC: OGRMF) represents one of the most attractive investment opportunities in Canada’s burgeoning cannabis industry. In addition to its strong financial performance, the company has plans to expand its production capacity to become one of the largest producers while entering into the higher margin extracts and edibles space. Investors should keep an eye on the stock over the coming year as these plans materialize.

For more information, visit the company’s website at www.organigram.ca or see CannabisFN’s profile at www.cannabisfn.com/mdc/organigram-holdings-inc.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.