Organigram Inc.

Organigram Inc. (TSX: OGI) is a Canada based licensed producer of cannabis products. Organigram focuses on producing exceptional, indoor-grown cannabis for patients and adult recreational consumers, as well as developing global business partnerships.

Recently, the company announced the Company’s Chief Executive Officer, Greg Engel, has accepted a position on the Board of Directors of the Canadian Chamber of Commerce.

Q3FY20 Financial Highlights:

• OGI announced its third-quarter results, wherein the company posted a lower revenue of CAD 22.241 million, comparatively lower than CAD 30.361 million in the previous corresponding period (pcp). The decrease was primarily attributable to lower flower sales volumes and a lower average net selling price.
• Gross loss widened to CAD 50.216 million, from CAD 0.179 million in the previous corresponding period (pcp).
• The company reported a higher loss from operation at CAD 99.309 million, as compared to a loss of CAD 11.288 million in Q3FY19, due to a significantly higher operating expense.
• Net loss stood at CAD 89.871 million, as compared to CAD 10.180 million in Q3FY19, due to a higher finance cost, and the inclusion of impairment of investments.
• The company ended the quarter with a cash balance of CAD 44.641 million, while total assets stood at CAD 433.677 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the ongoing COVID 19 pandemics, the group witnessed a reduction in production, cultivation, and processing and packaging capacity, which has dampened the overall operating performance. Furthermore, the continuation of the above trend might dampen the overall volume in the foreseeable future. 

Valuation Methodology: EV to Sales Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company’s cultivation plans focus on bringing new cultivars to the market and increasing the tetrahydrocannabinol and terpene profile of its dried flower to meet emerging consumer demand. Moreover, the group has finished its construction of Phases 4A and 4B and is waiting for its licensing approval from Health Canada and expects a total licensed cultivation capacity of 89,000 kg per year, which is impressive. The company has a segment which primarily caters to the adult-use recreational market, which has received healthy traction in the recent past. We believe, going forward, the company will continue to dominate the above segment based on the sales history in mature legal markets in certain US states. Furthermore, new product pipeline is likely to add improved business prospects too. We have valued the stock using EV to sales based relative valuation method and have arrived at a target upside of low double-digit (in percentage terms). For the said purposes, we have considered Aphria Inc, Hexo Corp and Aurora Cannabis Inc etc., as a peer group. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 2.16 on November 6, 2020.

OGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.