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Cannabis Watch

Organigram earnings: What to expect

East Coast producer has been punching above its weight, but investors should watch costs closely in third-quarter earnings Monday

Organigram Holdings Inc. is expected to report fiscal third-quarter earnings Monday before the opening bell. The company says it will host a conference call at 8 a.m. Eastern time.

What to expect

Earnings: On average, analysts polled by FactSet expect Organigram Holdings Inc. to report earnings of C$0.03 a share, up from 2 cents a share in the year-ago period.

Revenue: For the company’s second full quarter of adult recreational sales in Canada, analysts model revenue of C$30.3 million ($23.2 million), up from C$3.7 million in the year-ago period. In the March quarter, the company sold 4,987 kilograms of pot, up from 2,135 kilograms in the first quarter of recreational cannabis sales.

Stock movement: Organigram OGI-1.85% CA:OGI-0.44% stock has fallen 2.8% in the past three months, as the S&P 500 index gained 2.8%. Horizons Marijuana Life Sciences Index ETF has fallen 16.5% in the past three months. The company’s stock began trading on the Nasdaq on May 21. Previously it was traded in Canada and over the counter in the U.S.

Of the 12 sell-side analysts that cover Organigram, 11 have the equivalent of a buy rating on the name. One rates the stock a hold. The average target price is $12.35, which represents an upside of 34% from Monday’s closing price.

What to look for in the call

Last week, outgoing Canopy Growth Corp. CGC-0.32% CA:WEED-0.37% Chief Executive Bruce Linton praised Organigram as one of the stocks and companies investors should examine closely. While Organigram sold more recreational cannabis in Canada than every other company in the country in the prior quarter as from Canopy Growth — including larger-by-market-value rivals such as Aurora Cannabis Inc. ACB-2.88% CA:ACB-3.18% and Tilray Inc. TLRY+1.89% — it remains to be seen if the company will continue to rise above its rivals.

For more: One Canopy Growth co-CEO is out, and the other isn’t far behind in major shake-up

Jefferies analyst Ryan Tomkins wrote in a note to clients Tuesday that the consensus Organigram estimates may have overlooked some of the difficulties that remain in the market such as a shipment to Quebec that will get booked in the fourth quarter versus the third. Ontario too may present challenges from the New Brunswick-based pot producer as inventory is slower to move into the provinces distribution network.

Tomkins, who has a hold on the name with a C$10.50 price target, also wrote that while the company is set up to do well in the recreational market, Wall Street may be underestimating competition for cannabis drinks. Tomkins says investors should be wary of the costs related to rolling out several types of edibles and drinks at once and the possibility the company will have to buy third-party supply.

Organigram’s growing costs are among the lowest of the large licensed producers in Canada: it reported cash growing costs of C$0.65 in the fiscal second quarter, versus 56 cents in the fiscal first quarter. In an April note, GMP Securities analyst Martin Landry wrote that the company’s low grow costs put “the company in a league of its own.” Organigram manages to keeps its costs down because both labor and power are inexpensive in New Brunswick and the company’s yields are among the best in the sector.

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In April, Organigram received an expanded cultivation license from Health Canada that represents 11,000 kilograms of production capacity and additional areas to house irrigation equipment and processing facilities, among other things. The company says it has targeted annualized production capacity of 113,000 kilograms by the end of the year.

Organigram also signed a C$140 million credit facility with Bank of Montreal and the company said it would be used to fund expansions of its Moncton, New Brunswick, campus and refinance debt.

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