Organigram Beats in Fiscal Q1, Stock Soars, But For How Long?

Organigram Beats in Fiscal Q1, Stock Soars, But For How Long?

Eastern Canada LP, Organigram Holdings closed yesterday up 45.37% to $3.14. This is after reporting revenue growth in fiscal Q1 2020 that beat expectations.

The company reported fiscal Q1 2020 net revenue of CAD$25.2 million, more than double CAD$12.4 million from fiscal Q1 2019. However, results look less rosy in quarter-over-quarter comparisons.

In fiscal Q4 2019, Organigram reported net revenue of CAD$16.3 million. On a quarter over quarter basis, revenue only rose by 48%. Worse, this was a big drop in net revenue from what Organigram reported in fiscal Q3 of 2019: CAD$24.8 million.

This means that two quarters of operational development have yielded only CAD$0.4 million in net revenue growth.

To a significant extent, Organigram has been a victim of its location. Based in Atlantic Canada, Atlantic provinces have also underperformed in licensing cannabis stores and opening up markets for legal cannabis. Cannabis sales were actually trending lower in several of these provinces toward the end of 2019.

Organigram’s assurances on its capital needs were somewhat less than reassuring.
 

The Company believes it has enough capital to fund its operations and capital expenditure plans. The Company had $34.1 million of cash and short-term investments at quarter-end. Additionally, as of the date of this press release, Organigram has $30.0 million in undrawn capacity on its term loan and $32.1 million available to raise under its total $55 million at-the-market equity program (the “ATM Program”) after it raised $22.9 million subsequent to quarter-end.

With effectively zero revenue growth over the previous two quarters, if Organigram can’t generate substantial revenue growth in fiscal Q2, it’s difficult to see how the company can avoid raising further capital.

This makes the rollout of Organigram’s Cannabis 2.0 offerings of critical importance. Also critical will be a rebound in Organigram’s Atlantic Canada markets. CEO Greg Engel offered these thoughts for investors.
 

“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter. Our team was also successful in shipping the first of our Rec 2.0 products as planned and on schedule in December of 2019. We also look forward to the launch of the remainder of our vape pen portfolio followed soon after by our premium cannabis-infused chocolate products. In addition to an exciting line-up of 2.0 products, we are rolling out a couple of new core strains, such as our high THC Edison Limelight, across the country following their success as limited-time-offers in smaller markets.”

Phase 2 of cannabis legalization in Canada should provide a strong boost to revenues (and bottom lines) for Canadian cannabis companies. For Organigram, this is imperative as the company seeks to generate some operational momentum.
 

Published at Thu, 16 Jan 2020 11:00:01 +0000

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